Nigel Green, chief executive of deVere Group, the world's biggest independent financial advisory firm, has said that on the basis of China's reaction and other factors the US Foreign Account Tax Compliance Act (Fatca) looks as if it is beginning to unravel.
In an interview with InvestmentEurope, Green said that China's positioning would be crucial, because its view would also serve to steer the views of a number of other countries, particularly in Asia.
IE: How likely is China not to sign an IGA with the US?
NG: It is looking increasing likely that China will not sign an intergovernmental agreement (IGA) with the US on Fatca. This will be of huge concern to the US government because Fatca's strength is reliant upon every country in the world agreeing to abide by its rules. No other country in Asia has yet agreed to a Fatca IGA either, and countries in the region, and indeed across the world due to China's enormous - and growing - economic and political power, are influenced heavily by Beijing on such issues. As such, I suspect that there are some frantic behind-the-scenes, arm-twisting conversations going on between the US and Chinese authorities.
It appears that the People's Republic of China is refusing to cave in because Fatca flies in the face of several Chinese laws, making it difficult to implement even if it wanted to. Additionally, Fatca is expensive and complex for its financial institutes to introduce and the country would - thanks to a laughable lack of reciprocity - benefit very little from it.
IE: Do you believe that a separate IGA between Hong Kong and the US is sustainable given the apparent long term objectives of China?
NG: It is uncertain whether Hong Kong is considering a separate IGA with the US, however, it would seem that it is indeed doing so, judging from some media reports that I have seen. This would suggest that it has authority under its status as a Special Administrative Region of China to enter into such an agreement. I would expect that Beijing would, ultimately, be able to override such an IGA if it were inclined to do so - and judging by its stance to date on the issue, that could happen.
IE: How big is the risk that early signatories to the IGA process will want to renegotiate their deals if subsequent IGAs end up offering significant opt-outs to satisfy other jurisdictions?
NG: I don't think any earlier IGA signers would want to renegotiate based on opt-outs other countries might get. One of the articles of the "reciprocal" IGA supposedly already grants automatic benefit of more favourable terms found in future IGAs.
In addition, as repealfatca.com's James Jatras, a former US diplomat-turned-foreign policy lawyer and anti-Fatca lobbyist, recently told me it is unlikely that a country, such as the UK, which has signed an IGA would ask for more favourable conditions because the US would then just threaten direct enforcement of the full 544-page Fatca regime on all British foreign institutions. Or as he put it: "It's doubtful London would play that game of chicken, having blinked already by signing the IGA in the first place."
IE: Do you believe that US Fatca will be used as a route to implement UK Fatca, France Fatca, Germany Fatca, etc by cash-strapped European governments?
NG: It seems a reasonable, yet extremely unfortunate, assumption that other governments will consider implementing their own Fatca-style laws, should the American experiment prove, in their eyes, to be successful.
However, as we can see, the US Fatca project is already looking like it is beginning to unravel - as it is fundamentally flawed and will do little to achieve its original aims - and this, one would hope, might deter other governments from attempting something similar.
IE: Fatca is arguably one manifestation of some two decades of work by the OECD to agree anti-tax avoidance rules globally. What does the OECD work of today point to in terms of tomorrow's regulations as applied to the financial services sector?
NG: The OECD has come out in support of Fatca, although it would seem to me that Fatca itself is driven almost entirely by the US Treasury, as one wouldn't expect a global organisation such as the OECD to devise such a non-reciprocal, biased agreement.
Indeed, recently, the OECD has proposed to draft its own global rules to tackle tax avoidance. If there was political will, these regulations could, according to some analysts, come into effect within two years. Naturally, we would have to wait and see what these rules contain to see how they might affect the financial services sector.
Today on Investment Europe
Social Responsible Investing (SRI) is gaining ground across the European asset management industry, but Italy's is still weighted to the retail investor.
Henderson Global Investors has won the Group of the Year category at the InvestmentEurope Fund Manager of the Year Awards, with Polar Capital taking Specialist Group of the Year.
InvestmentEurope's Pension Fund Forum is taking place today, 21 November, in Zurich - offering a programme of individual speakers and panel discussion throughout the day.