Cambodia has agreed to help the United States in its global effort to crack down on tax evasion by working with local banks to hand over financial data on US residents and business interests abroad, according to tax experts and officials.
Speaking yesterday at the 17th Government-Private Sector Forum held at the Peace Palace in Phnom Penh, Prime Minister Hun Sen confirmed the government’s intention to aid the US with its Foreign Account Tax Compliance Act (FATCA), which takes effect on July 1.
The Internal Revenue Service, the US tax collection arm, estimates that $100 billion in taxes is lost every year from offshore bank accounts.
Although FATCA regulations were crafted to go after tax dodgers with at least $50,000 in assets, any US citizen with a foreign bank account in Cambodia and in participating countries abroad will also face an extra level of scrutiny.
“This is simply an overarching law for the US to be able track down its citizens' overseas financial activities and tax them accordingly,” said Clint O’Connell, a partner at Phnom Penh-based tax firm VDB/Loi. “Cambodian banks still have to report the details of all US citizens to the IRS even if they have assets of less than 50k. The IRS then makes the decision as to whether the US citizens conform or not.”
The measure also looks at dividends, stocks, insurance information, investments and other pertinent financial data that would be held by foreign financial instutions, or FFIs.
In other words, whether you’re a US citizen teaching English and earning $20,000 per year in Phnom Penh with only a motorbike and an iPad to your name, or a US business executive with more than $100,000 in financial and non-financial assets, foreign banks such as Acleda and ANZ Royal, to name two of the biggest, will have to pass along your financial information to the IRS after July 1.
“As the reporting institutions, banks will need to submit the person or company’s nationality, any financial statements or bank accounts,” In Channy, CEO of Acleda, explained.
Cambodia, along with the rest of the participating countries, will file its first list of financial information in March 2015 for the 2014 period.
When asked if he thought FATCA would affect US business interests in Cambodia, Channy said the law would put almost every country on an equal playing field.
“All businessmen go where the opportunities are. If the FATCA applies globally, then businessmen will not be left with much choice,” he said.
The Foreign Account Tax Compliance Act was signed in 2010 with an initial deadline for all countries of January 2013. Privacy and diplomatic concerns, however, delayed the global reporting requirement twice. Some of those concerns, of course, still exist.
Channy stated yesterday that the law “may abuse the sovereignty” of Cambodian law, and called on the government to spearhead talks with the IRS.
The IRS website declares that any foreign institutions found to be non-compliant with the terms of FATCA could face penalties.
“It seems like the US law could order around foreign banks to comply,” he said.
Firms can either independently supply the information, or they can enter into an agreement in which banks can go through a level of the host government, which then deals with the US. Cambodia has not picked either way yet.
As head of a banking and financial sector working group, Channy concluded that Cambodia’s compliance with FATCA would be better served working through governments, rather than private firms voluntarily and independently reporting the financial information to the IRS.
Asked about the impact of the enforcement on American citizens and American-owned businesses in Cambodia, John Simmons, deputy public affairs officer for the US embassy, provided a link about the law from the IRS website.
The embassy also did not respond to a question regarding the size of the American expatriate community in Cambodia.
According to the IRS webite, exemptions exist for non-profits, certain small financial institutions and some retirement entities.
Speaking at yesterday’s forum as the head of the private sector working group on Law, Tax and Governance, Bretton Sciaroni, chairman of the American Chamber of Commerce in Cambodia, called on the local government to take the lead on the FATCA negotiations.
“There are two options available and, in the interest of continuity and consistency, the banking association prefers if the Royal Government takes the lead in dealing with the US authorities,” he said.