China: How Common Reporting Standards Will Impact High Net Value Individuals

Last Updated: 9 December 2016
Article by Le Rong

The Organisation for Economic Co-operation and Development's (OECD) Common Reporting Standards (CRS) are designed to facilitate global exchange of financial account data. Foreign accounts and structures (such as companies and trusts) owned by Chinese tax resident individuals may no longer be confidential and private.

Last October, the State Administration of Taxation of China issued the Administrative Measures for Due Diligence of Tax-related Information on Financial Accounts of Non-residents (the "Administrative Measures") for public comments. This shows that the Chinese government has already initiated the legislation process for the exchange of tax and financial related information with other global institutions. The Administrative Measures are part of a series of actions developed by the Chinese government in response to treaties and cooperation commitments it has made to improve its tax and financial transparency.

Chronology of Events

February 2013

The Organisation for Economic Co-operation and Development issued a report called "Addressing Base Erosion and Profit Shifting (BEPS)" and agreed to formulate a set of common reporting standards on international tax matters as commissioned by the G-20

August 2013

State Administration of Taxation of China signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters in Paris, France on behalf of the Chinese government

July 2014

CRS was issued by OECD and supported by G20

September 2014

China commits to implement CRS

December 2015

State Administration of Taxation of China signed and approved the Multi-lateral Competent Authority Agreement ("MCAA"), a formal international agreement where signatories agree to adopt the CRS

October 2016

China starts its CRS legislation process

What is the CRS?

Generally speaking, the CRS establishes an information sharing mechanism. The OECD's formulated mechanism requires financial institutions to identify foreign tax resident account holders. Financial institutions broadly include:

  • banks
  • trust companies
  • custodial institutions
  • funds and fund managers; and
  • insurance companies,

Once these account holders have been identified, the financial institution will need to determine whether to report any financial information relating to these accounts to the relevant country competent authority. Information that will need to be reported includes the holders' (individuals or enterprises):

  • Name
  • address
  • place and date of birth
  • account numbers
  • interest
  • dividend
  • account balance
  • proceeds from sale; and so on.

Once an account is considered reportable, financial institutions are required to report the aforesaid information to the competent authority in its country. The relevant country competent authority will later need to exchange such information with the taxation authority of the country where the account holders are its tax payers.

It is important to note that this system does not involve tax collection or payment. Whether foreign account holders need to pay extra tax, based on the financial account information exchanged between competent authorities, and the amount of such tax shall be determined and implemented in accordance with the tax laws of the state in which the taxpayers belong. The CRS simply sets out the criteria which determine whether financial information of an account needs to be reported.

There are currently over 100 jurisdictions committed to implement the CRS and over 80 that have signed the Multi-lateral Competent Authority Agreement and have thus formally committed to exchange financial account information in accordance with CRS standards, including:

  • western countries, such as UK, Germany, France;
  • major Asian economies, such as Japan, South Korea, Singapore; and
  • tax heavens, such as BVI and Cayman Islands.

These countries have committed to start exchanging information from 2017.This means that major economies around the world will work together to eliminate barriers on tax-related information which makes illegal tax avoidance and evasion more difficult.

Actions taken by Chinese government

The Chinese government has been very active in initiating the legal process to fulfill this commitment. On 27 August 2013, the State Administration of Taxation, on behalf of Chinese government, signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters in Paris, France. Since then, China has not only been dedicated to the multilateral negotiations of tax information exchange through international organisations, but has also tried to sign bilateral agreements on tax information with countries separately. As the implementation of the CRS standards require the committed countries to set up internal legislation and to sign bilateral or multilateral agreements on automatic exchange of information, we believe that the Chinese government will continue to ensure the commencement of information exchange in 2018.

Although the Administrative Measures are currently in draft form, it requires Chinese financial institutions to conduct due diligence on their clients from 1 January 2017. The requirement of opening an account in Chinese financial institutions has been relatively easy, without the need for due diligence to be carried out. The Administrative Measures stipulate that due diligence must be carried out on all accounts opened after 1 January 2017. In addition, the Administrative Measures state that, financial institutions must complete, within 2017, due diligence on personal or corporate accounts that have a combined balance of more than 6 million RMB at or before December 31, 2016. By the end of 2018, due diligence on all clients (including those who have a balance below 6 million RMB in their accounts) must be completed.

The Administrative Measures not only provide guidance to financial institutions which have the obligations to conduct due diligence on accounts that need to be investigated and how to conduct such due diligence, but it also identifies which accounts are free from due diligence. These include accounts of social security, retirement accounts which hold a certain amount and soldier's accounts. According to the Administrative Measures, those who violate the provisions, and if the circumstances are serious, will be punished and may have their business license revoked or have their qualification abrogated. The Administrative Measures do not provide a deadline for the submission of information or for the implementation of specific procedures, leaving it to local bank authorities to decide. The State Administration of Taxation showed that it will, together with Chinese financial competent authorities, formulate submission methods for tax-related financial information.

What impact will the CRS have?

The implementation of the Administrative Measures and the fulfilment of CRS information exchange may not have much of an impression on Chinese tax residents who do not have overseas accounts, except that they will need to submit more information when opening a foreign account. However, there will be a significant impact on Chinese tax residents who have overseas accounts or non-resident enterprises or individuals who have accounts in China.

Overseas Chinese or Chinese who have obtained an indefinite leave to remain in foreign countries, regardless of the limits of their residency, are considered "non-residents". Chinese who stay in foreign countries may be categorised as "non-residents", depending on the duration of their stay within the relevant foreign county. Although the Administrative Measures do not give a concrete definition on what a "non-resident" is, it is implied that enterprises, organisations and individuals that are not tax resident in China are non-resident. Furthermore, the Administrative Measures lists various factors for financial institutions to consider when determining whether their clients are non-residents, such as having foreign ID cards, living outside China and having a foreign contact number. Generally, financial institutions tend to interpret the definition of a non-resident broadly in order to minimise their liabilities.

With most of the major economies in the world undertaking to implement the CRS standards, we have every reason to believe it will inflict a significant impact on the global asset allocation of high net value individuals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
29 Nov 2017, Seminar, London, UK

Join us at 4 More London for this breakfast seminar on Wednesday, 29 November 2017 to gain a greater understanding on this debate. Coffee and breakfast will be from 08:30 with the discussion commencing at 09:00. We will finish and have you on your way by 10:00.

7 Dec 2017, Seminar, London, UK

Would you like the opportunity to hear more about the potential disruptive effect that blockchain is going to have in the energy sector? If so, please join us on 7 December where Jo-Jo Hubbard, a leading light in this area, will explain all.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.