Trade deal to reduce tariffs with Vietnam
Kingdom on alert for US taxpayers
WITH the International Revenue Service (IRS), the t a x - c o l l e c t i o n arm of the United States government, stepping up its global sweep to catch American individuals and corporations hiding their overseas earnings, the American Chamber of Commerce in Cambodia yesterday held a presentation for investors and financial institutions to make sure they are in compliance with US tax laws so as to avoid the discomfort of an IRS probe.
Legal experts and banking officials warned of the strict penalties for US taxpayers and onerous standards on local banks outlined in the Foreign Account Tax Compliance Act (FATCA). The US tax legislation, which Cambodia has implemented since 2014, requires foreign financial institutions to hand over data on the identity and assets of US citizens and business interests to the US Treasury Department.
“If foreign financial institutions have American bank account holders, or are dealing with a potential US taxpayer, they are required to report to the IRS,” explained Joseph Lovell, a senior legal counsel at regional law firm Sciaroni and Associates.
Failure to adequately report has myriad consequences that can include a foreign bank withholding 30 percent of the payments for an individual or corporation, and thousands of dollars worth of fines, he added.
He said that under the FACTA framework, an American citizen that is living, working or merely holding a Cambodian bank account in Cambodia, would not likely need to file with the IRS unless their assets or income are valued above the $200,000 to $300,000 “trigger”.
While the onus inevitably falls on the US taxpayer, he nevertheless advised that vigilance was needed by Cambodian financial institutions to comply with US government regulations.
“The way to avoid [IRS scrutiny] is basically that financial institutions need to report all US citizen accounts and set up indicators for reaching that high threshold,” Lovell said. “But this increases the burden on the financial institutions’ customer requirements.”
He added that it was typically a costly and cumbersome task to make sure that all banks in Cambodia were properly following the regulations and identif ying American account holders.
An even more strict provision that the IRS has been increas- ingly enforcing for American citizens abroad is the Report of Foreign Bank and Financial Accounts (FBAR), which demands that banks and individuals notify the IRS whenever an offshore bank account holds more than $10,000 in deposits.
Jim Swander, the American CEO of Oxley Worldbridge Specialized Bank, said that this regulation was already making waves throughout the industry.
“For FBAR, it is really confusing for bankers,” he said, adding that American businesses or US citizens involved in business are typically listed as shareholders or hold joint accounts.
“The precaution that US companies are starting to take is that they are dropping all American signers on accounts because it is too much of a risk,” he said. “The other thing is that the IRS does not trust that FBARs are accurately being filed.”
He said the tax measures were making it more difficult for Americans to open offshore accounts as traditional financial hubs like Singapore have been turning away business.
“I can say that there are also banks in Cambodia that are looking at the costs of FACTA and FBAR compliance as a major burden,” he said, adding that compliant banks were simply providing data dumps of account information to US authorities.
“As for our bank, we simply will not deal with any Americans,” he said flatly.
So Phonnary, executive vice president of Acleda Bank, said that while compliance with the US tax authorities meant that the bank had to invest capital into human resources and infrastructure for data sharing, the transmission of US account details was not easy.
“The issue that we have with data exchange is that we send the information of our American account holders to the General Department of Taxation, and then they verify it and send it to the US authorities,” she said.
However, “if our reports are not checked and verified within seven days, they are immediately dismissed and we have to send it again for authorisation”, she said, adding that the coordination between the two governments was not yet smooth and deadlines were often missed. CAMBODIA andVietnam inked an agreement yesterday to drop import tariffs on dozens of products in an effort to boost bilateral trade.
Cambodian Commerce Minister Pan Sorasak signed a memorandum of understanding (MoU) with Vietnamese Minister of Trade and Industry Tran Tuan Anh ahead of the opening session of the 8th Cambodia-Laos-MyanmarVietnam Summit (CLMV-8) in Hanoi.
According to the agreement, Cambodia will provide a special preferential duty on 29 Vietnamese products, allowing them to enter the country dutyfree. Vietnam agreed to prov ide t he sa me preferent ia l treatment for 39 Cambodian products, including 300,000 tonnes of rice annually and 3,000 tonnes of dried tobacco in 2016 and 2017.
Soeng Sophary, spokesman of the Ministry of Commerce, said the MoU would benefit producers and exporters in both countries, and promote the flow of cross-border trade.
“This bilateral MoU will provide direct benefits to producers and exporters because they will receive a tariff exemption and consumers will in turn get fair prices,” she said.
“It is part of mutual strategy of promoting bilateral economic growth.”
Hanoi is hosting the CMLV-8 concurrently with the 7th Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy Summit (ACMECS-7), and theWorld Economic Forum on Mekong (WEF-Mekong).
The trade agreement follows the launch of the ASEAN Regional Business Council (RBC) at the WEF Mekong on Tuesday. Among the key priorities of the RBC, which comprises 25 ASEAN and 30 global companies, is lifting non-tariff barriers that continue to impede regional trade.
“Trade barriers have come down sig nif ica nt ly, close to zero in most cases, but there are so many non-tariff barriers across ASEAN,” the Vietnamese daily Viet Nam News quoted RBC chairman Nazir Razak as saying.
“We will work on these barriers by engaging the government and different sectors.”
Trade between Cambodia and Vietnam surpassed $3 billion in 2015, falling far short of the targeted $5 billion.