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Taiwan's financial institutions urged to prepare for U.S. tax law

2011/11/25 22:20:11

Taipei, Nov. 25 (CNA) Financial institutions in Taiwan should be prepared to voice their concerns to local authorities over a new U.S. tax law that could have a huge impact on the local banking system, a financial expert said Friday.

The law, known as the Foreign Account Tax Compliance Act (FATCA), will ask foreign financial institutions (FFIs) to report detailed information regarding U.S. accounts when it takes effect on Jan. 1, 2013.

Designed to combat tax evasion by U.S. taxpayers with accounts in FFIs, the law has raised worldwide concerns because it could come in conflict with local information protection laws.

Jay Krause, head of Withers Wealth Planning Asia Group, suggested that Taiwan's financial institutions keep reporting potential difficulties in complying with the law to Taiwan's government so more effective government-level negotiations with the U.S. can be held on the issue.

Krause said a recent resolution passed by the Legislative Yuan, which demands that Taiwan's government write to the U.S. government to discuss the FATCA, was a smart move, because the U.S. Internal RevenueService (IRS) has solicited comments from all organizations that might be affected by the law.

Under the law, FFIs will be asked to enter into an agreement with the IRS to report information on its U.S accounts.

Those that fail to cooperate will be subject to a 30 percent withholding tax on income from or sales of assets they hold in the United States.

Krause described the introduction of FATCA as a significant turning point in the global banking system because financial institutions will have to move from secrecy on account information, where no information is revealed under any circumstances, to confidentiality.

He suggested that local lawmakers take the trend into consideration to make adjustments in information protection-related regulations.

"Since the 2008 financial crisis, many countries have come to consider that non-payment of taxes is a crime," Krause said. "Compromises are going to need to be reached."

(By Lee Hsin-Yin)