A brave new world in tax transparency: CRS in China, Hong Kong and Taiwan
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A brave new world in tax transparency: CRS in China, Hong Kong and Taiwan

Increasing cross-border business and investment has made the holding of assets overseas through offshore accounts increasingly common. This has become a new tax battleground for businesses and governments. Charles Kinsley, Henry Wong, and Eva Chow look at the latest developments regarding these efforts in China, Hong Kong and Taiwan.

The background to the existing wave of global initiatives in the exchange of tax information space goes back to an initiative launched in the US in 2014. The US Congress, driven by concerns that taxpayers had achieved sophisticated means of investing offshore to potentially avoid US taxation, enacted the Foreign Account Tax Compliance Act (FATCA) effective from July 1 2014. The FATCA, as a unilateral reporting mechanism, required the identification and reporting of US taxpayers by foreign financial institutions (FFIs), being institutions located outside of the US, to the US Internal Revenue Service (IRS). This has since evolved further, through intergovernmental agreements (IGAs) with other countries, into a more bilateral-based system. The FATCA imposes a penal withholding tax of 30% on US-sourced withholdable payments made to FFIs and other foreign entities that fail to comply with the disclosure requirements.

In response to the need for having a global mechanism for the periodic exchange of financial account information, the OECD formulated the automatic exchange of information (AEOI) standard to standardise the approach on information exchange between participating jurisdictions. The AEOI standard comprises two parts: the model competent authority agreement (MCAA) and the common reporting standard (CRS). The MCAA, which can be bilateral or multilateral, is the operational document on how to conduct the automatic exchange of information among tax authorities in different jurisdictions. It also provides the legal basis for those countries or jurisdictions that wish to participate in the exchange (as will be noted later in this chapter, China has opted for a multilateral approach). The CRS stipulates the identification requirements and reporting obligations of financial institutions (FIs), as well as the related requirements and procedures for collecting and reporting information of foreign tax-resident individuals and entities to domestic tax authorities.

Since the release of the AEOI standard, it has attracted attention and support globally and more than 100 countries/jurisdictions have already committed to it. More than 50 'early adopter' countries/jurisdictions implemented the AEOI standard with effect from January 1 2016, while others ('late adopter' countries) have generally implemented the standard with effect from January 1 2017. It is worth noting that while early adopters had their first information exchange in September 2017, late adopters will have their first information exchange in September 2018. It should be noted that the US is not yet a CRS participant country.

CRS in China

Since the beginning of 2016, the China State Administration of Taxation (SAT) has conducted several rounds of consultation on the Chinese version of the AEOI standard with various regulators and representatives from large FIs in China. This was to ensure that the unique regulatory and operating environment of the Chinese financial industry would be carefully considered when implementing the AEOI standard.

On May 9 2017, the SAT along with the Ministry of Finance (MOF), People's Bank of China (PBOC), China Banking Regulatory Commission (CBRC), China Insurance Regulatory Commission (CIRC) and China Securities Regulatory Commission (CSRC) jointly released the 'Measures on the Due Diligence of Non-resident Financial Account Information in Tax Matters', Announcement (2017) No. 14 (Announcement 14). Announcement 14 stipulates the principles and procedures for FIs established in China to follow, and to identify any reportable non-residents of China that hold financial accounts with the institutions and to collect the required financial account information for the Chinese authorities. Announcement 14 came into force on July 1 2017 (instead of January 1 2017 like most other late adopter jurisdictions of the CRS) with the first online registration deadline being December 31 2017, followed by an annual reporting deadline of May 31 of the following year.

The formal implementation regulations for Announcement 14 have not as yet been released by the SAT. However, we note that the PBOC has released draft consultation guidance for implementation of the CRS rules for the banking sector. For other financial sectors, no such guidance is available yet. A draft consultation on the reporting rules has also been circulated among large FIs in China. It is expected to be released towards the end of 2017 or early 2018. A public consultation on the implementation and reporting rules might be released as well.

Highlights of China's CRS regulation

Announcement 14 has seven chapters and 44 articles that provide an overall framework for the due diligence requirements for both newly opened accounts and pre-existing accounts, compliance, reporting, and supervision requirements.

Financial institutions established and operating in China are required to conduct the due diligence procedures to identify any reportable non-resident account holders as well as the controlling persons of passive non-financial enterprises (passive NFEs), then report the required financial account information to the Chinese tax authorities. Overseas branches or subsidiaries of Chinese FIs, as well as overseas investment funds raised by Chinese firms are excluded from applying the Chinese CRS rules but should follow local CRS rules in their respective countries/jurisdictions where they operate.

Where an account is identified as reportable, the FI should collect and report the account holder's name, address, tax resident country (region), taxpayer identification number (TIN) issued by the resident country (region), place of birth and date of birth (where applicable), account number, year-end balance of the account, as well as income received by that account to the Chinese tax authorities.

On the same date that Announcement 14 was released to the public, the SAT also set up a special AEOI website in Chinese to provide an introduction to the Chinese CRS rules, the legal framework of the OECD's AEOI standard, reference materials including the taxation laws on Chinese tax residency for both individuals and enterprises, the statutory format of China's TIN system and FAQs. There is also a link to the online registration portal, however, at the moment, it is still under development.

In terms of the timeline, Announcement 14 and China's AEOI portal map out the deadlines and tasks to be completed by FIs shown in Table 1.

Table 1

Key dates

Tasks to be completed

Up to and including June 30 2017

Financial institutions need to identify those financial accounts (both individual and entity) that are pre-existing as of this date and to adopt a different level of due diligence and remediation procedures based on the account balance thresholds as stipulated in Announcement 14.

Starting from July 1 2017

Financial institutions are required to conduct due diligence and adopt new account opening procedures for newly opened individual and entity accounts starting from this date, including the completion of a mandatory self-certification form as part of the account opening procedures.

By December 31 2017

Financial institutions need to complete due diligence and remediation procedures on any pre-existing individual high-net-worth financial accounts (with an aggregate balance exceeding $1 million as of June 30 2017).

Announcement 14 also requires FIs to log-on to the SAT’s AEOI portal to complete their registration for CRS purposes by December 31 2017.

By May 31 2018 (and every year after)

Financial institutions are required to submit required financial account information to the Chinese authorities.

In September 2018

The SAT will exchange the first batch of reportable account information with other nations (or jurisdictions) that are participating in the AEOI standard and have agreed to information exchange.

By December 31 2018

Financial institutions need to complete due diligence and remediation procedures on the remaining pre-existing individual low-net-worth financial accounts (with an aggregate balance of no more than $1 million as of June 30 2017) as well as all other pre-existing entity financial accounts (with an aggregate balance exceeding $250,000 as of June 30 2017).

In September 2019 (and every year thereafter)

The SAT will exchange the second batch of reportable account information with other nations (or jurisdictions) that are participating in the AEOI standard and have agreed to information exchange.

By December 31 of each year

Financial institutions should implement a continuous monitoring mechanism/process to identify any change of circumstances that may require renewed due diligence work and reporting of information to the Chinese authorities

Comparison with the OECD rules

Given that Announcement 14 is largely based on the OECD rules, the major components of the rules basically mirror the OECD standard. However, similar to many new regulations released in China, they start with a high-level framework without detailed implementation guidance and therefore, FIs will face many issues at the time of implementation.

In terms of certain optional provisions or other pending matters, Announcement 14 has not addressed or provided sufficient details on the position taken. For example:

  • There is no specific requirement for filing a nil return by a reporting FI to indicate that it did not maintain any reportable accounts during the year.

  • There is no mention of whether an extension of filing will be provided.

  • The rules were only released in May 2017, less than two months before the July 1 2017 start date. Many of the FIs that are within the scope of Announcement 14 found themselves with insufficient time to implement the CRS.

  • While Announcement 14 provides definitions of 'related entities' and the concept of 'control', it does not provide clarification on how 'related entities' will apply to investment entities like funds that are under common management. This could give rise to an issue of a pre-existing investor in a domestic fund being considered as a new-account investor when investing in a newly established domestic fund that is under common fund management.

  • Detailed reporting and related schema have not yet been released but it is expected that the first round of reporting to the SAT will be due in May 2018, which again gives little time for FIs to prepare for the modification of systems and reporting of data.

  • No specific guidance has been provided on what type of notices and how frequently FIs should inform their customers about the implementation of the CRS in China and the possibility that their information will be reported if certain conditions are met.

  • The list of information exchange partners/jurisdictions is not addressed by Announcement 14. Instead, the list of activated bilateral exchange relationships for CRS purposes will be separately announced by the SAT and provided to the OECD. As of August 7 2017, exchange relationships were activated by China with 47 countries and jurisdictions – these include, inter alia, Australia, Canada, France, Germany, Ireland, Japan, Jersey, Korea, Luxembourg, Mauritius, and the Netherlands. Globally, as of August 7 2017, there were more than 2,000 bilateral exchange relationships activated among 70 of the jurisdictions committed to the CRS.

  • While Announcement 14 provides that an FI must establish and implement a monitoring mechanism to assess the effectiveness of the implementation of the rules on an annual basis, it fails to address how the Chinese authorities will be reviewing FI compliance and to what extent the monitoring mechanism will be considered to be effective.

Given that Announcement 14 is intended to be a high-level framework requiring FIs operating in China to follow certain due diligence procedures, detailed implementation guidance or reporting rules should hopefully be released soon to allow FIs to take action. Meanwhile, FIs implementing the CRS in China should take the OECD commentaries into consideration in resolving certain questions until the Chinese rules become clear.

Action plans for FIs

Announcement 14 will have a broad impact on the entire financial services industry and affect almost every business unit of an FI operating in China. Specifically in China, FIs should:

  • Identify which part of the business will be affected by the CRS.

  • While certain processes may be centralised by the head office like data processing and reporting, certain due diligence requirements like obtaining self-certification forms from account holders and direct communication with customers will still need to be handled by front line relationship managers and proper training should be provided to them.

  • New customer onboarding processes will need to be updated to take into account the CRS due diligence requirements and to obtain customers' self-certification. Specifically FIs should produce client communication materials that sufficiently educate them on the reasons for the information collection and the responsibility between the account holders vs. the FIs.

  • Evaluate how the new CRS due diligence process can be integrated into existing know-your customer (KYC)/anti-money laundering (AML) procedures and leverage any existing data obtained/processes already in place in order to maximise operational efficiency and minimise costs of compliance.

  • An internal continuous compliance and monitoring process will need to be in place for the CRS, especially to monitor or detect any changes of circumstances to financial accounts and reportable account holders.

  • Evaluate existing IT systems to identify whether they are capable of collecting, analysing, monitoring and reporting requisite financial and tax data to the authorities.

  • Although it is unknown when the Chinese regulations regarding US FATCA will be announced by the SAT, FIs should still consider whether to combine the FATCA and CRS work. If combined, the gap between the FATCA and CRS requirements should be identified. If FIs have already prepared for US FATCA implementation, the incremental work resulting from the CRS should also be identified.

Given the complexities of the CRS compliance requirements and uncertainties in the actual implementation, FIs should continue to pay close attention to CRS developments in China as well as the subsequent releases of detailed implementation guidance and reporting requirements for FIs that are not yet covered in Announcement 14. It should be noted that the CRS will provide a key underpinning for Chinese individual income tax (IIT) reform, planned for 2018, and for the new China tax authority data pooling and analytics systems being progressively brought online.

Recent developments in Hong Kong

Hong Kong adopted the CRS as of January 1 2017 and will undertake the first exchange of information in 2018. The Hong Kong CRS due diligence and reporting requirements are largely consistent with the OECD framework.

Unlike most jurisdictions committed to the CRS, Hong Kong initially did not plan to sign a multilateral instrument for CRS implementation allowing for the exchange of information between the Hong Kong government and other participating jurisdictions directly. Instead, the AEOI in Hong Kong was to be conducted on a bilateral basis with jurisdictions with which Hong Kong had signed a comprehensive avoidance of double taxation agreement (DTA) or tax information exchange agreement (TIEA). Hong Kong was initially slow in entering into the necessary arrangements with other countries to provide information about accounts held in Hong Kong by residents of other countries. For the first CRS reporting period (due in May 2018), information was to be provided only to Japan and the UK where the CRS bilateral competent authority agreements (BCAA) were signed in 2016. Hong Kong therefore fell under pressure from the OECD to accelerate the pace of information exchange.

The Hong Kong Legislative Council passed an amendment bill in June 2017 for the expansion of the list of reportable jurisdictions under the CRS from two (i.e. Japan and the UK) to 75 to meet international expectations (effective as of July 1 2017). The newly added CRS reportable jurisdictions include all EU member states, all of Hong Kong's tax treaty partners that have committed to CRS, and other jurisdictions that have expressed an interest to the OECD in exchanging CRS information with Hong Kong. Financial institutions in Hong Kong are required to start collating information about relevant account holders from these jurisdictions from July 1 2017.

For these new reportable jurisdictions (except Korea), account information will need to be provided to the Hong Kong Inland Revenue Department (IRD) from July 1 2017 (compared with January 1 2017 for Japan and the UK and January 1 2018 for Korea). The IRD will provide the relevant information to the relevant jurisdiction only after it has signed a competent authority agreement with that jurisdiction or there is an extension of the multilateral convention on mutual administrative assistance in tax matters (MCAA) from China.

Apart from the expansion of the CRS reportable jurisdictions, some promoters had marketed the potential use of retirement schemes in Hong Kong to avoid CRS reporting earlier this year, in particular the employer operated occupational retirement schemes. The CRS legislation in Hong Kong provides that occupational retirement schemes registered under the Hong Kong Occupational Retirement Schemes Ordinance (ORSO) qualify as non-reporting FIs and hence CRS reporting is not required. The IRD subsequently issued a clarification in May 2017 stating that only the occupational retirement schemes registered under the ORSO, as opposed to occupational retirement schemes exempted from registration, qualified as non-reporting FIs. Any scheme that was granted an exemption certificate under the ORSO remained a reporting FI for CRS purposes. The IRD also emphasised that the anti-abuse provisions under the Hong Kong CRS legislation would be applied to counteract arrangements where the main purpose, or one of the main purposes, was to avoid the CRS due diligence and reporting obligations.

Reporting FIs in Hong Kong are required to register on the IRD AEOI portal. Also, they are required to submit a notification of commencement of maintaining reportable accounts within three months after they commence maintaining a reportable account. Reporting FIs maintaining reportable accounts before July 3 2017 were required to fulfil the registration and notification requirements by October 3 2017.

An AEOI account can be registered and/or operated by service providers or the person maintaining financial accounts (if an FI is not a corporation), provided there is prior notification to the IRD of the details of the person authorised to register/operate the AEOI account under a specified form. The IRD is operating a trial run of the functions provided under the AEOI portal (including registration, notification and return filing) for the reporting FIs in Hong Kong tentatively up to the end of 2017.

In terms of FATCA, Hong Kong and the US signed a Model 2 IGA on November 13 2014. Under the Hong Kong-US IGA, FFIs in Hong Kong are required to comply with the required FATCA due diligence and reporting requirements. As Hong Kong is a Model 2 jurisdiction, FFIs are required to report the relevant account information of US persons directly to the IRS. Foreign Financial Institutions in Hong Kong should have completed FATCA reporting for years 2014 to 2016 by March 31 2017. We are aware that the IRD has issued a number of query letters to FFIs regarding their FATCA filing to the IRS, in particular to obtain details of the recalcitrant accounts that were reported to the IRS on a pooled basis. The IRD then exchanged such information with the IRS under the TIEA entered into between Hong Kong and the US.

Recent developments in Taiwan

The MOF of Taiwan issued a draft version of the CRS regulations for public consultation on August 8 2017. The draft CRS regulations provide information relating to due diligence procedures for FIs and govern the implementation of the CRS in Taiwan. The CRS is expected to be effective in Taiwan on January 1 2019, and the first reporting date will be before May 31 2020.

Due to Taiwan's ineligibility to become an OECD member, Taiwan cannot participate in the CRS MCAA. Nevertheless, in order to prevent Taiwan from being viewed as a jurisdiction that fails to comply with the CRS, and therefore be included in the list of non-cooperative tax jurisdictions issued by the OECD, the MOF is committed to complying with the requirements set by the OECD and implementing alternatives to an MCCA. The alternatives include (i) entering into bilateral agreements with other jurisdictions, and (ii) amending Articles 5-1 and 46-1 of the Tax Collection Act.

With respect to Articles 5-1 and 46-1 of the Tax Collection Act, the Legislative Yuan of Taiwan passed the amendment on May 26 2017 (effective from June 14 2017). Under the amendment, the MOF has the authority, on a reciprocal basis, to effect the automatic exchange of tax and bank account information with other jurisdictions for tax matters. The amendment specifies details regarding the type of information to be exchanged and the proposed timing of such information exchange. This amendment provides the legal framework for the CRS draft regulations in Taiwan.

The CRS draft regulations in Taiwan are based on the OECD CRS, and the 'wider approach' is adopted to identify the tax residence of each account holder. However, FIs in Taiwan are only required to report information concerning the 'reportable jurisdictions' to the competent authority, which potentially refers to the jurisdictions with which Taiwan has signed a CDTA. As of 2017, Taiwan has signed CDTAs with 32 jurisdictions (including Singapore, Australia, Canada, and Switzerland). The MOF is actively liaising with its tax treaty partners and hopes to sign a BCAA and commence the first information exchange in 2020.

Final takeaway points

The new global standard on the AEOI aims to reduce the possibilities for tax evasion via offshore investment platforms. It provides for the exchange of non-resident financial account information with the tax authorities in account holder countries of residence. Participating jurisdictions that implement the AEOI automatically send and receive pre-agreed information each year, without having to send a specific request.

The AEOI will enable the discovery of previously undetected tax evasion. In the new world of tax transparency, tax evaders will have few places to hide. Apart from enabling governments to recover tax revenue lost to non-compliant taxpayers, the AEOI may increase voluntary disclosures of concealed assets, with amnesty programmes playing a key role. Forward-looking FIs could take this opportunity to enhance their business models, improve data quality and analytics capabilities, resulting in more efficient operations and a better customer experience.

We would like to thank Aileen Zhou for her contribution to this chapter.

Charles Kinsley


Partner, Tax

KPMG China

8th Floor, Prince's Building

10 Chater Road, Central, Hong Kong

Tel: +852 2826 8070


Charles Kinsley is a leader in the financial services industry with extensive knowledge and experience in retail and investment banking. He advises a number of global financial institutions on tax issues relating to their business operations and products across Asia. His role includes advising on operational taxes, the US qualified intermediary regime, Foreign Account Tax Compliance Act (FATCA), common reporting standard (CRS) and anti-money laundering (AML) tax evasion.

He participates in a number of tax working groups/associations advising on tax matters and is a regular speaker at tax events.

His portfolio consists of a number of household names in the financial services sector with headquarters in the US, Europe and Asia.

Henry Wong


Partner, Tax

KPMG China

26th Floor, Plaza 66 Tower II

1266 Nanjing West Road

Shanghai 200040, China

Tel: +86 21 2212 3380


Henry Wong is a tax partner based in Shanghai with KPMG China. Henry has been specialising in tax advisory work in the financial services and M&A sectors for more than 15 years with extensive international and China tax experience in serving clients across different industries on direct and indirect tax advisory projects, due diligence work, merger and acquisition advisory, cross-border tax compliance and tax planning as well as day-to-day general corporate tax compliance engagements.

Henry serves many financial sector clients including banks, insurance companies, securities and brokerage, commodity and derivative traders, as well as leasing and asset management companies. He also works extensively with various investment fund clients including private equity firms, mutual funds, asset management companies, QFII, QDII, QFLP, QDLP, hedge funds, real estate investment trusts (REITs), etc.

His involvement in the investment fund advisory sector has included all phases of the fund lifecycle, like onshore and offshore fund formation and structuring advisory from tax and regulatory perspectives, establishment of fund entities, profit repatriation planning for funds as well as portfolio investment in China, investment entry and exit planning, executives'/employees' compensation/incentive planning, carried-interest structure planning as well as helping clients in addressing specific partnership taxation issues.

Recently, Henry has also been participating in various tax advisory projects for financial services clients including on China's VAT reform, Foreign Account Tax Compliance Act (FATCA) compliance as well as common reporting standard (CRS) advisory.

Before joining KPMG China, he worked with the KPMG Canada member firm in Toronto on international and Canadian tax matters for financial services clients.

Henry holds the professional designations of Canadian Chartered Accountant (CA), US Certified Public Accountant (CPA) and Chartered Financial Analyst (CFA).

Eva Chow


Director, Tax

KPMG China

8th Floor, Prince's Building

10 Chater Road, Central, Hong Kong

Tel: +852 2685 7454


Eva Chow is a director in KPMG's Hong Kong tax practice. She has more than 12 years' experience in Hong Kong and international tax. She has extensive experience in tax compliance and advisory services for clients in the financial services sector. She has been involved in cross-border investment structures and financing arrangements, including coordinating and advising on regional engagements.

Eva has been involved in various Foreign Account Tax Compliance Act (FATCA) engagements in Hong Kong and China, including in the banking, asset management, insurance and non-financial sectors. Eva also leads a number of common reporting standard (CRS) engagements for major financial institutions in Hong Kong and China. Eva has written articles for professional journals and is a frequent speaker on the FATCA and CRS regimes for various business associations.

Eva is a Certified Tax Adviser and a fellow member of the Taxation Institute of Hong Kong.

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