- 1 Hong Kong Mandatory Provident Fund and 3520 Form Reporting
- 2 What is Form 3520/3520-A?
- 3 Why Would HK Mandatory Provident Fund be Reported on Forms 3520/3520-A?
- 4 Does Revenue Procedure 2020-17 Apply to HK Mandatory Provident Fund?
- 5 International Tax Amnesty Programs for HK Mandatory Provident Funds
- 6 Can I Just Start Filing Form 3520/3520-AThis Year Instead?
- 7 Our International Tax Lawyers Represent Clients Worldwide
Hong Kong Mandatory Provident Fund and 3520 Form Reporting
The Hong Kong MPF (Mandatory Provident Fund) is a hybrid between Foreign Pension and Social Security. Similar to Provident Funds in other Asian countries such as Singapore and Malaysia, the Provident Fund is a crucial part of an employee’s foreign retirement plan. It is well-established that the reporting of Mandatory Provident Fund is required on various Internal Revenue Service and FinCEN international information reporting forms such as Form 8938 (Foreign Accounts Tax Compliance) and FBAR (Foreign Bank and Financial Account Reporting Form aka FinCEN Form 114). Depending on the status of the MPF, US Person Taxpayers may also be required to report the Mandatory Provident Fund on Form 8621 (PFIC aka Passive Foreign Investment Companies) — but a key question is whether or not the HK Mandatory Provident Fund is required to be reported on Forms 3520/3520-A.
What is Form 3520/3520-A?
Forms 3520/3520-A are used to report foreign trust and gifts. When a person has an ownership interest in a foreign trust — or has received a foreign trust distribution — they are generally required to report the ownership on Forms 3520/3520-A and the distribution on Form 3520.
Why Would HK Mandatory Provident Fund be Reported on Forms 3520/3520-A?
The HK Mandatory Provident Fund is technically a retirement trust. There is an owner, beneficiary, and trustee — and while the purpose of the retirement pension is distinct from other less scrupulous offshore trusts — it would be considered a foreign trust (pension trust) nonetheless. For purposes of the MPF, the purpose of reporting the Mandatory Provident Fund would be to report ownership of the foreign trust (to the extent the beneficiary/taxpayer is imputed ownership of the assets in the MPF) and possibly distributions from the trust. Unlike the FBAR and Form 8938 — the Form 3520 and 3520-a reporting requirements are much more detailed and time-consuming.
Does Revenue Procedure 2020-17 Apply to HK Mandatory Provident Fund?
There is a recent revenue procedure (Rev Proc 2020-17) that exempts certain tax-deferred foreign retirement and non-retirements investments from Form 3520 and 3520-A reporting. The Revenue Procedure 2020-17 supplements the previous Rev Proc 2014-55 (which unfortunately refers specifically to Canadian RRSPs and RRIFs only). The problem with Revenue Procedure 2020-17 is that has several factors that apply to the analysis — and many of these factors are ambiguous at best. In addition, the Rev. Proc. does not identify the specific foreign retirement or other investments that it applies to. This is very important as noncompliance with Forms 3520 and 3520-A reporting can result in very steep fines and penalties.
*Rev Proc 2020-17 does not eliminate the FBAR and Form 8938 reporting requirements for HK Mandatory Provident Fund and other qualifying tax-deferred foreign investments.
International Tax Amnesty Programs for HK Mandatory Provident Funds
The International Tax Amnesty Programs are programs developed by the Internal Revenue Service to assist Taxpayers who are already out of compliance for non-reporting, including HK Mandatory Provident Funds.
Some of the more common programs include:
Can I Just Start Filing Form 3520/3520-AThis Year Instead?
No, unless the current year is the first year you had a 3520/3520-A reporting requirement. If you had a prior year reporting requirement, but only begin to start filing in the current year (Filing Forward) it is illegal. In the world of offshore disclosure, this is referred to as a Quiet Disclosure. The IRS has warned taxpayers that if they get caught in a Quiet Disclosure situation, it may lead to willful penalties and even a criminal investigation by the IRS Special Agents.
Our International Tax Lawyers Represent Clients Worldwide
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm today for assistance.