Taipei (Taiwan News) -- Three days before Christmas, Taiwan and the United States worked together to send Americans living in Taiwan a special Christmas gift -- the long-rumored "Fat Coffee Agreement" -- which will enable the IRS to crackdown on Taiwanese that either hold a U.S. passport or green card and earn income overseas, was signed by the two nations, though lawmakers have vowed to veto it for being "unfair."
Lawmakers currently oppose the terms of the Foreign Account Tax Compliance Act (FACTA), mockingly referred to as the "Fat Coffee Agreement" in Chinese, as it collects data from "non-cooperative" clients from Taiwan banks, but does not require U.S. banks to reciprocate for Taiwan's taxation bureau.
Effective April 2017, approximately 5,000 Taiwanese citizens who are also American citizens or hold U.S. green cards will be required to report all overseas investments to the IRS.
The Financial Supervisory Commission (FSC) said that although it had signed a FATCA cooperation agreement with the United States, the agreement would have to be approved by the Legislative Yuan and signed by the President. Under the terms of the new agreement, the United States will be able to request Taiwanese financial institutions to provide information on "uncooperative clients" when the United States suspects a citizen or green card holder is committing tax evasion.
In response to lawmakers' question on the fairness of the act, Finance Minister Sheu Yu-jer said Taiwan would seek to sign a tax information exchange agreement (TIEA) with the United States. Sheu argued that signing a TIEA with the U.S. would enable Taiwan to track down wealthy Taiwanese citizens who are evading taxes abroad.
In March 18, 2010, the US government promulgated FATCA in an effort to combat tax evasion by the estimated 9 million U.S. citizens living abroad, and thus far 113 countries have signed onto the program. Beginning on July 1, 2014, people opening bank accounts in Taiwan who were found to be U.S. citizens were asked to sign forms allowing their account information to be sent to the IRS, those who chose not to fill out the IRS paperwork were labeled as "non-cooperative" and their information would be sent to the FSC.
Under the new agreement to take into effect in 2017, the IRS will be directly provided with personal information on these "non-cooperative" clients.
The agreement stipulates that Foreign Financial Institutions (FFI) provide the IRS with information on all investments of U.S. citizens and green card holders in overseas financial institutions (including deposits, stocks, funds, bonds, currencies, credit cards, but excluding real estate).
Taiwanese financial institutions that fail to provide information to the IRS are subject to a 30 percent punitive withholding tax on U.S. source payments paid to the financial institution or its clients. Sheu stated that Taiwan was forced into this agreement due to the threat of the 30 percent withholding tax.
Critics of the program contend that this in effect is a form of double taxation, as these investors are also subject to taxes on investments in the country their bank is based in. Many Americans are renouncing their citizenship to avoid the long arm of the IRS, with a record 4,279 renouncing citizenship in 2015, an increase of 25% from the previous year, according the U.S. Treasury Department. Sheu told legislators that Taiwan has been trying to sign an agreement that would avoid such double taxation, but to no avail thus far.
Credere Media reports that accountants are anticipating a record number of Americans renouncing citizenship as the IRS increases the scale and depth of overseas assets held by U.S. nationals and green card holders worldwide.
According to the National Immigration Agency, there were 10,126 American citizens residing in Taiwan as of Dec. 28, 2016.
Who is affected?
1. U.S. citizens (including dual citizens), U.S. residents and U.S. green card holders
2. Those with personal bank account deposits in excess of US$50,000
3. U.S. companies with bank deposits over US$250,000