Tax deal needs framework

Updated: 2014-07-03 07:52

(China Daily)

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The 2010 Foreign Account Tax Compliance Act represents a significant initiative by the United States to tackle offshore tax evasion. But it has not been popular with Chinese authorities, especially the banking sector, in part because it was considered an extra burden.

Why should it obligate itself to do such a favor to the US without getting anything in return?

Thus reports that the Chinese and US authorities are getting closer to signing an agreement on the FATCA that will facilitate the fight against corruption in this country is welcome news.

Once the agreement is signed, while helping the US Internal Revenue Services plug a large tax loophole in that country, the Chinese government will receive information from the US about Chinese taxpayers in that country.

Media and popular speculation have given the impression that most of the country's rich, and corrupt officials, have transferred or are transferring their wealth overseas. Yet, thanks to the lack of information, even the government has no idea exactly how serious the situation is.

That such an agreement is being reviewed and awaiting approval in both capitals is an encouraging development, at least from the perspective of advancing our fight against corruption. Whether or not it is an "unexpected", "unintended" or "collateral" effect, it may turn out to be worth all the trouble in reaching an agreement.

Effectively dealing with the prevalent corruption is essential to safeguarding government credibility and legitimacy.

But it is naive to think an intergovernmental agreement alone will work wonders. Given the tricky issue of individual privacy, which our Constitution and other laws promise to protect, it is hard to predict to what extent such an agreement can ultimately help in the crusade against corruption.

Privacy concerns deserve discretion and they justify extreme prudence in deciding whether details of such information should be withheld or released. The government should not be allowed unlimited discretionary power in obtaining such information. There has to be a well-defined legal framework for the purpose.

We have seen precedents where foreign judicial authorities' revelations of clues to corruption in this country, some of them solid and obvious, fell on deaf ears here.

The positive potential of such an agreement themselves, therefore, do not equate to the anticipated outcomes. It hinges ultimately on what the authorities intend to achieve with the information in hand.