China issues formal CRS legislation

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On 19 May 2017, the State Administration of Taxation (SAT), the Ministry of Finance (MOF), the People’s Bank of China (PBOC), the China Banking Regulatory Commission (CBRC), the China Securities Regulatory Commission (CSRC) and the China Insurance Regulatory Commission (CIRC) finally issued the formal common reporting standards (CRS) legislation, i.e., bulletin No. 14. This provides key provisions on financial institution reporting, reportable financial accounts, due diligence procedures, and information requirements. The reporting standards and due diligence procedures under Bulletin No. 14 are basically consistent with the Organization for Economic Co-operation and Development (OECD) CRS proposal. Bulletin No. 14 took effect on 1 July 2017.

Prior to that, China signed the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (CRS MCAA) on 16 December 2015. As of 22 June 2017, the CRS MCAA had 92 jurisdictions signed up. Although China has not activated the exchange relationship under the CRS MCAA, the automatic exchange of CRS information is expected to soon become a reality in China.

As non-PRC residents have very limited channels of investing in China or bringing capital to the country, due to its foreign currency controls, China’s automatic exchange network for CRS information is unlikely to have a material impact on non-PRC residents. However, this automatic exchange network could immediately impact PRC residents who hold offshore assets.

China has long been a worldwide taxation jurisdiction. However, due to lack of information on Chinese residents’ offshore income, Chinese tax authorities have lacked the ability to enforce worldwide taxation against Chinese tax residents in the past. The upcoming automatic exchange of CRS information will enable the PRC tax authorities to obtain more information for them to enforce tax collection on the PRC residents’ offshore income.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Danian Zhang (Shanghai) at: danian.zhang@bakermckenzie.com