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CRS: The tax acronym all expats need to know, today.

Few people like discussing the details of tax laws, but this week there is a good reason to delve into those murky waters.  Why?  Because this is a tax law that is going to affect pretty much every expatriate no matter where they live. 


It’s known by the bland name, Common Reporting Standard or the acronym CRS.  Don’t be fooled – it’s the biggest rule change for expatriates we’ve ever seen.  The reason for this is simple.

 

The days of paying tax locally on your salary income whilst ignoring any potential tax on investments placed overseas say in Singapore or elsewhere are over.  Dead. Gone.


CRS goes live in September 2017 and it means that data sharing between countries and your offshore bank and your country of residence suddenly got a million times easier. 



The OECD describes it as “automatic”.   Hiding money and investments offshore and avoiding taxes just got a lot harder and maybe impossible.  So, we found a few tax experts to ask them what they thought of the Common Reporting Standard (CRS). 


We have Borys Priadko, an Aussie CPA in Shanghai and Ishali Patel from Buzzacotts in Hong Kong, a licensed tax agent for Brits and Americans to tell us what it all means.

 

Does the CRS apply to me?


Borys Priadko – Shanghai


CRS and FATCA apply to me – this is irrelevant as these regulations apply to financial institutions (FI) who must report information required according to account holder’s passport details. Individuals in fact do not have a choice apart from not having accounts with financial institutions. This is why the system works as it is the financial institutions who will suffer should they not provide the data e.g. loss of ability to use USD for instance. If a person fails to provide information to the FI it is not clear what will be the outcomes at this stage.


Ishali Patel – Hong Kong


The CRS requires Financial Institutions operating in participating jurisdictions to report the details of account holders who are resident in another participating jurisdiction.  The definition of Financial Institution (FI) for these purposes is drawn widely and will include certain family owned investment companies, trusts or other types of entity as well as banks and wealth managers.  However, some types of FI are exempt from CRS reporting, for example, certain types of tax favored accounts and certain pension funds or government bodies.


Around 100 jurisdictions have signed agreements to participate and have local legislation and guidance in place to implement the standard.  Some jurisdictions began their participation in 2016 with the first reports filed in 2017.  Others, including China and Hong Kong, joined the CRS a year later.


So, for example, a Financial Institution in the PRC will be required to report the following details to the Chinese tax authorities in respect of all account holders who are resident outside of the PRC in another participating jurisdiction (e.g. those resident in Hong Kong):

  • name

  • address

  • jurisdiction of residence

  • date and place of birth

  • Tax Identification Number or equivalent


Note that account holders of a PRC Financial Institution who are only resident in the PRC and not in any other participating jurisdiction, will not have to be reported to the PRC tax authorities by that FI.  However, if the same person also has an account with a Hong Kong FI, their details will be collected by that FI in HK and reported to the HK tax authorities, who will then provide that information to the PRC tax authorities.


So, basically, it affects anyone who is resident in one CRS participating tax jurisdiction but has an account with a Financial Institution that is resident in another jurisdiction.

 

How do you find your TIN (Tax Identifier Number)?


Borys Priadko – Shanghai


To find your TFN in China it depends if you are a foreigner or a Chinese national.  For Chinese nationals, it is simply their ID number.  For Foreigners, it shouldn’t be difficult because their employer should have their TIN which was generated when they paid taxes.  If you are self-employed or not working then your passport number is your TIN.  See this guide for further information.


Ishali Patel – Hong Kong


Hong Kong currently does not issue TINs.  Instead the Hong Kong Identification Card number (located in the bottom right-hand corner of the HKID card) must be provided.

For entity account holders, the Business Registration number (located in the middle of the BR certificate under the heading “Certificate Number”) should be provided.

 

What happens if you don’t provide your TIN for a fund investment or stock market account?


Borys Priadko – Shanghai


Should you fail to provide required information to the financial institution then your new account may not be opened. For existing accounts the financial institution may try to bring pressure to bear you’re your account to be suspended until relevant details are provided.


There is currently no requirement but there is an obligation to supply all the information required under CRS. The FI may also inform the relevant authorities that you have failed to provide the information and that may cause authorities to look at your accounts more closely. Until the whole process is implemented it is not 100% clear what will be the outcome. There are sure to be more changes as they tighten the net.


Ishali Patel – Hong Kong


If the account holder does not provide their TIN and the Financial Institution does not have it already, then the FI would just report all the other details that it has on record, including the name and address.  The FI must then continue requesting the TIN from the account holder in order to meet its compliance obligations but would not usually be required to close the account.

 

So, are jurisdictions really sharing data?  Will fishing expeditions still be banned?


Borys Priadko – Shanghai


Yes, the jurisdictions who have signed and agreed to participate are all sharing the data based on when they agreed to start etc. Basically, fishing by tax authorities is no longer required as tax authorities get all the data so it is just then how they use this data to review individuals as per their own review policies for people who come under their regulations e.g. passport holders.


Then how that passport holder fits into their regulations and has complied or not may lead to request from various authorities for more data – this is not fishing any more it is targeted information gathering based on the CRS data.


Ishali Patel – Hong Kong


The first exchange deadline for the CRS for most jurisdictions has not arrived yet so it is unlikely that much information has been exchanged as yet but the local legal framework is in place for the participating jurisdictions so there is every reason to expect that the data exchanges will take place.


It is expected that fishing expeditions will be banned but in some jurisdictions the ban may be difficult to enforce.

 

What penalties will apply?


Borys Priadko – Shanghai


There are as far as I understand no penalties on individuals for non-compliance as it is financial institutions who need to comply with regulations and penalties for them are very severe in terms of being able to use foreign currencies in their operations etc.

Individuals will be subject to the review of the tax regulations applicable to them as CRS data on their FI accounts is revealed. E.g. a person has an off-shore bank account with large amount of funds and cannot correctly account for tax being paid on the funds. Thus, they will be subject to tax regulations not CRS regulations.


Ishali Patel – Hong Kong


Financial Institutions will be subject to a penalty regime under local law, so this will be different in each jurisdiction.  In Hong Kong, the tax authorities will have the power to enter and search the premises of Financial Institutions that are suspected of non-compliance and to seize documents that contain the relevant information.  Financial penalties can be levied in varying degrees, depending on the extent of the compliance failure.  In some cases, custodial sentences may also be used to punish responsible persons representing a non-compliant FI.


The account holders themselves cannot normally be penalized for non-compliance with the CRS rules as the burden of responsibility falls on the FIs they have accounts with.  However, if the exchanges of information reveal that an account holder has taxable income or gains in a participating jurisdiction that they have not reported or paid tax on, they are likely to be approached by the relevant tax authorities and may be penalized under the laws of that jurisdiction.

 

Final Comment: Get Organized.


So, the time to get your tax affairs in order has arrived.  Paying tax could be a better and cheaper approach than paying penalties to the country where you live.  CRS goes live in September which means that data sharing is about to start.  While some countries may not be quick to use it, we suspect many in Asia such as China will all too ready to plug budget gaps by looking at the data and seeing what they find.  The “Google for tax authorities” is not yet here, but with the raw data is about to become readily available then it is simply a matter of time.  So get your affairs organized enough that you could run for public office.  Yup, this time it’s serious.


Thanks to Ishali and Borys for taking the time to answer our questions.  If you have more on this topic please email us on admin@caterergoodman-am.com and we can answer them in a follow up post.

 

Borys Management Services


Borys Management Services provides interim management, CPA tax advice, audit and bookkeeping services as well as company set up in China, liquidation services and management consulting for medium and large multinationals’ China operations. We work closely with PKF in China as Borys is a partner in a PKF firm as well as having his own consulting practice. Borys has extensive experience and for the past 17 years has lived and worked in China with the last 9 year in his own businesses.  Find Borys on (021) 6253 1800.


Buzzacotts


Although Buzzacott is a modern firm, we are incredibly proud of our rich history and the success that we have achieved over nearly 100 years of business. We have over 330 staff working with 30 partners in specialist teams. Being under one roof is a real advantage because we can communicate with each other easily, work co-operatively and provide a full service to our clients. That knowledge, gained through front-line experience as well as individual training, is applied by “specialist teams” who combine niche expertise in international and regulation-intensive sectors – expatriates, charities, LLPs – with excellence in mainstream tax and financial management services. The quality of their advice explains Buzzacott‘s growing reputation.

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