China releases CRS compliance requirements for financial institutions
Recently, the State Administration of Taxation (SAT) released the Discussion Draft on the Administrative Measures on the Due Diligence Procedures for Non-residents' Financial Account Information in Tax Matters (the Discussion Draft)to solicit public opinion. The Discussion Draft provides detailed requirements for domestic financial institutions (FIs) to collect financial account information held by foreign individuals and entities. The Discussion Draft received a lot of attention from both FIs and taxpayers in China.
The issuance of the Discussion Draft earmarks the localisation of Common Reporting Standard (CRS) in China through legislation. As a new standard adopted by various tax authorities around the world to tackle with the issue of lack of transparency on cross-border information, CRS requests for exchange of financial accounts information of foreign individuals and foreign enterprises between governments, so as to improve tax compliance internationally. So far, 101 jurisdictions have committed to implement CRS, and there are 84 signatories to the multilateral instrument to implement the CRS.
The Discussion Draft provides guidance for FIs to comply with the CRS obligations, including different requirements for pre-existing accounts and new accounts, the sample forms to be filled in, as well as the contents and methods to report information. FIs are suggested to take swift actions to meet the new compliance requirements.
Collecting information is the starting point for tax authorities. How to facilitate the exchange of information among different governments, and more importantly, how to leverage the vast amount of information exchanged for the purpose of tax administration will be the next essential steps that require further exploration. In the backdrop of increasing tax transparency worldwide, taxpayers operating globally or receiving overseas income must pay more attention to the tax compliance and tax risk management all over the world.
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