China now has better mechanism in fighting tax evasion abroad as it officially joins the US treaty on sharing bank account information - the US Foreign Account Tax Compliance Act (FATCA) - which took effect on 1 July.

The US Treasury Department said FATCA compels financial institutions around the world to reveal information on US tax payers to the US government. In return, the US will also provide necessary tax information on citizens of participating countries.

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Joining the treaty means China now has significant new leverage in the fight against tax evaders who are hiding their wealth abroad by getting access to information on Chinese taxpayers in the US, the official Xinhua News Agency reported.

The agreement also calls for Chinese banks to reveal financial details of US financial accounts to the Internal Revenue Services (IRS) in order to curb offshore tax evasion, a move that will have positive effects for China, tax experts said.

The tax treaty also allows the Chinese government access to relevant financial information that will help it in going after tax evaders. The information include account identity, address of account holders, details of deposits and balances, among others.

Chairman Gong Chengyu of the Beijing Economic Research Institute said the treaty will be more beneficial for China in the long run considering that Chinese citizens in the US have more bank accounts than US citizens in the mainland.

Both China and the US have agreed on the terms of the Foreign Account Tax Compliance Act, which is also adopted by most countries around the world, especially its aim of curbing offshore taxes that were not reported previously.

Financial firms who will fail to report to the IRS information on clients who are US taxpayers will face a 30 percent withholding tax on their income in the US.

TagsFATCA, US Foreign Account Tax Compliance Act, China Tax Evasion, tax evasion, Tax Compliance Act