According to The Wall Street Journal, the US Treasury Department has initialed an agreement with the Chinese government. The move aims to implement a 2010 federal law to curb offshore tax evasion. The reciprocal agreement between China and the US requires China to provide the US with information on US citizens' financial accounts, and in return, the US will provide the Chinese government with information on Chinese citizens' US accounts.

The law, officially named the Foreign Account Tax Compliance Act, is seen as putting the US crackdown on offshore tax evasion "into high gear." The law requires foreign banks to submit information on accounts held by US citizens to the Internal Revenue Service. The law's implementation will make life more complex and costly for US taxpayers with overseas financial ties, affecting everything from retirement savings to investments, and even divorce agreements.

The US Treasury Department said the US has reached agreements related to the law with more than 80 jurisdictions worldwide, involving over 77,000 foreign banks, investment funds, and other financial institutions. Under the agreements, in addition to other countries providing the US government with information on Americans' financial accounts, the US will also provide other countries with information on their citizens' accounts in the US.

It is estimated that the US loses about $100 billion annually due to offshore tax evasion. Some experts predict that the law will add about $800 million in revenue to the US Treasury each year.

Comprehensive

Expert Interpretation

What benefits will the agreement bring to China and the US?

China will provide the US with information on US citizens' financial accounts, and the US will also provide the Chinese government with information on Chinese citizens' US accounts. What impact will this news have? How do experts view it?

Viewpoint 1

Good news for China's anti-corruption efforts

Economist and professor at Xi'an Shiyou University Zeng Zhaoning believes that, without a doubt, the news is good for advancing China's anti-corruption efforts.

Zeng Zhaoning analyzed that the Chinese government has always found it a headache to regulate Chinese citizens' overseas accounts. Last month, Switzerland fully opened up its centuries-old deposit confidentiality policy, which has made corrupt officials or wealthy individuals who put their deposits in Swiss banks very anxious, and has also played a positive exemplary and promoting role for the US agreement. In particular, some Chinese officials and wealthy businessmen, in order to evade increasingly strict domestic anti-corruption actions, have moved their children and spouses abroad or joined foreign nationalities, and transferred illegal income to foreign financial institutions in an attempt to avoid scrutiny. Now that the US is willing to provide the Chinese government with information on Chinese citizens' US accounts, it is of great significance for promoting anti-corruption.

Professor Tan Minxian from the School of Economics and Finance at Xi'an Jiaotong University expressed a similar view: "From an anti-corruption perspective, the news is naturally good, especially as a warning to corrupt officials."

However, experts also said that corrupt officials will certainly try to find new places to hide their wealth, and some Latin American countries may become new destinations for these people's wealth, and these countries will benefit from it.

Viewpoint 2

Helps the economic development of both China and the US

"China provides the US with information on US citizens' financial accounts, so the US government will have a clear picture of its citizens' overseas wealth. It will be very difficult for these people to evade taxes by transferring wealth overseas," analyzed well-known tax expert Yao Xuange. This will make life more complex and costly for US taxpayers with overseas financial ties, thereby curbing US residents from transferring capital overseas and encouraging domestic consumption to boost the domestic economy.

Gong Chengyu, director of the Beijing Tianhe Economic Research Institute, believes that overall, Chinese citizens' deposits or capital in the US are much larger than US citizens' deposits or capital in China. Therefore, whether in the short term or long term, this is more beneficial to China. In addition, the US pays more attention to its own GNP, or gross national product, and US citizens' deposits and investments in China can be counted in its GNP, thereby promoting its economic growth. From the perspective of global economic integration, the exchange of citizen account information between the two countries is conducive to the economic development and capital alignment of both countries.

Viewpoint 3

It is a means of US counter-terrorism

Professor Tan Minxian believes that after the 9/11 attacks, the entire US elevated counter-terrorism to a new height. This reciprocal agreement between China and the US is mainly for the US to curb offshore tax evasion, but also to strengthen counter-terrorism. By regulating US citizens' overseas accounts, it is more conducive to improving information transparency. Because terrorism often has strong financial support, strict monitoring of capital flows can also play a counter-terrorism role.

"Whether in the US or China, increased information transparency will naturally play a positive role in promoting counter-terrorism," Yao Xuange holds a similar view.