By Keith Hilden- Squawkonomics
I just had a fascinating video interview in Taipei with tax expert Jeff Chou, CPA from Ernst and Young. Along with Bitcoin insights on taxation, audit, and risk management, Chou outlined a changing worldview on where the hotspots of financial privacy are located in today’s world- a far cry from the privacy havens of even 10 years ago.
FATCA Meets Its Match: Taiwan Banking Confidentiality Law To Derail FATCA in Taiwan?
FATCA has been one of the major forces in the world reshaping financial privacy that is effectively a 30% sanction of their US sourced income for those that do not comply. For banking privacy havens such as Switzerland, this is effectively a trade of giving up its status as a financial privacy destination in order to maintain access to the US market. With UBS alone having well over a hundred branches in 40 states, Switzerland’s major banks arguably do have a lot to lose by having US market access impeded. Smaller Swiss banks’ interests nonwithstanding, there is certainly an interest in maintaining that US market access for the bigger Swiss banks.
Now let’s look here in Taiwan and what interest it has in signing, and also implementing, FATCA. The biggest bank, state owned Bank of Taiwan, only has 2 branches in the US, while Cathay United Bank only has 1 in Los Angeles. Chou stated in the interview that most of their operations are in Taiwan or mainland China. The impediment of US market access to Taiwan banks appears rather negligable indeed. Taiwan because of its limited exposure to US markets finds itself in a unique position, and a position that Taiwan could utilize to become a new financial privacy hub in Asia.
In the Mandarin language interview, Chou also states Taiwan’s inability to be able to sign FATCA due to the US not clarifying its position on Taiwan’s sovereignty. As FATCA is agreed upon by nations through an intergovernmental agreement. Taiwan thus has a card it can play and by playing this card, being able to continually sidestep the implementation of FATCA by claiming inability to have the authority sign the document in the first place. Chou further hints that were the American government to clarify and recognize Taiwan’s claim of sovereignty that of course it would be happy to sign the document. Chou suggests that the real trade between FATCA with the US and Taiwan is financial transparency for sovereign recognition. This is the only benefit that Chou sees with FATCA, and he claims that for Taiwan to sign FATCA, will be to forfeit its rights if it were not to gain any benefit by implementing FATCA. Chou ends the statement by bluntly saying Taiwan has no incentive to implement FATCA.
He also states because of Taiwan’s Personal Information Protection Act that technically disclosing personal confidential client financial information may constitute a breach of the Taiwan Personal Information Protection Act, a move that may very well shift Taiwan’s status to a nascent hub for financial privacy. This is why the Chinese language internet is alight with talk of saving in Taiwan dollars in their accounts rather than USD denominated accounts as one of the proposed methods to avoid the effects of FATCA by removing the element of the nexus of US business from their savings and transactions. In a big picture sense, if the Chinese continue to discuss how to avoid saving and making transactions in USD in order to sidestep FATCA compliance issues, this then forms another linchpin for the harbringer of the US dollar being dethroned as global reserve currency, replaced by a basket of currencies, or even a global currency as potential endgame scenarios.
There is a surprising degree of steadfastness among banks to preserving personal financial information in Taiwan. This is due to the rigor contained in not only the Personal Information Protection Act, but also the Personal Data Protection Act, which as Chou stated were conveniently signed into legislation during the same time period FATCA was going through the legislation process in the US in 2010. In all the times I have asked bankers in Taiwan whether they can give financial information to a US bank or entity that requests it, they all say they cannot unless there is a court order specifying it, as well as the client agreeing for the release of the personal information.
The laws are surprisingly robust even after Legislative Yuan banter and attempts to water down the law. While still surprisingly effective in creating roadblocks for FATCA execution within Taiwan, the original Taiwan Personal Information Protection Act was so tight in its initial drafting that simply giving someone a third person’s cell or home phone number without their knowledge was known to be a breach of the Personal Information Protection Act (PIPA), let alone confidential banking information. It still remains to be a law strong enough to create a conflict of interest with FATCA compliance, which Chou outlined as a roadblock for FATCA implementation in Taiwan. Chou hints that Taiwan legislators would be happy to provide the necessary loopholes if Taiwan’s interests are better represented in the implementation of FATCA compliance in Taiwan.
Another effect in both Switzerland and Taiwan has been the renouncing of American citizenship and passports due to FATCA’s impositions. Chou states in the English language interview that due to FATCA Taiwanese are trying to get nationality from “better…. or…. less regulated… countries” When I asked whether Taiwanese felt that American citizenship was less valuable because of FATCA in a video yet to be released, he nodded, and then clarified that there were other redeeming qualities of American citizenship, but that yes, FATCA is a factor in making the American passport and citizenship less desirable.
Unlike Switzerland, FATCA is not a done deal in Taiwan due to laws created at the same time as FATCA, perhaps aiming to make FATCA implementation as difficult as possible in Taiwan. These difficulties can be eased by the creation of a double tax avoidance agreement between Taiwan and the US. Of course, as Chou hints, were the US to make concessions regarding Taiwan’s sovereignty claims, then of course Taiwan could be persuaded to roll out the red carpet for FATCA. Otherwise, Taiwan claims inability to sign an intergovernmental agreement with a nation like the US that does not recognize it. As Chou stated, this is a very hot button issue in Taiwan, and there is a lot of talk of what Taiwan can gain in concessions for agreeing to FATCA.
What emerges from all this is an island government aspiring to become a nation that could very well emerge and take the place of Switzerland as a major global financial privacy hub. Another key takeaway from this is that currently neither the US nor China has the authority to demand any confidential financial information from Taiwan banks- a condition that just might be very appealing to mainland Chinese who are looking for a destination a little closer to home to park their wealth in confidentiality. Taiwan’s combined unique status as not a territory, yet not a country, and its claimed inability to sign international agreements, thereby hindering compliance efforts, may very well be its impetus for developing as a premium financial privacy hub in Asia.
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