Chinese Fat Cats Ran Overseas, But Now They're Streaking Thanks to CRS

The new Common Reporting Standards (CRS) that will reveal overseas Chinese to China's tax authorities as well as foreigners with accounts in China. The headline warns that fat cats are "streaking" (running naked) overseas now that information will be shared.

iFeng: 富豪这回集体“裸奔”了！还有更狠的后招……

Why is CRS greatly concerned by the market?

The signing and implementation of CRS indicates that the personal financial asset information will be automatically exchanged between the tax authorities of participating countries (regions), and finally provide information support for countries (regions) to conduct cross-border tax source supervision.

Once wealthy people are found to have not declared a large amount of property overseas, they will not only face high personal income tax payment, but also foreign companies that may face a corporate income tax of up to 25%, and if the source of huge funds is unknown, things will be even worse...

What exactly is CRS?

In short, CRS is the global version of the Fat Cat Act.

The Fat Cat Act, the US FATCA Act that came into effect in July 2014, is the US domestic legislation to combat overseas tax avoidance and tax evasion. The bill itself does not have a taxation function, but is part of the information reporting system in the US tax law. Its specific function is actually to identify the offshore property of US taxpayers, prevent US taxpayers from disguising overseas assets, and then evading taxes.

The concept of “global taxation” was extended to the UK and later extended to the OECD (Organization for Economic Co-operation and Development, OECD).

The OECD has been entrusted by the G20 to develop the Common Reporting Standard (CRS), which is committed to nearly 100 countries or regions to implement in 2017 or 2018. China has signed an intergovernmental agreement with the United States to implement FATCA and promised to implement CRS.

China is already sharing information with 58 countries as of September, 43 more are expected in the future.

Which people are affected?

So, who is the impact of CRS? How to influence? The Shanghai Securities Journal reporter gave you a complete list.

First, Chinese tax residents holding overseas financial accounts.

According to CRS regulations, the national (regional) authorities that hold deposits, escrow accounts, securities accounts, futures accounts, cash value policies, annuity contracts, financial institutions' equity/debt rights and other financial assets abroad need to deposit the above financial assets. Information about assets is disclosed to domestic regulatory authorities.

In particular, information on foreign exchange financial assets held by high net worth individuals (the balance of personal stock net worth account exceeds the equivalent of 6 million RMB), including account holder name, taxpayer, identification number, address, account number, account balance, and interest. Information on dividends, financial assets and financial assets will be in the hands of the regulatory authorities.

For high net worth individuals, these overseas assets will no longer be hidden, and their funding channels and foreign exchange compliance may also be reviewed.

Second, non-Chinese tax residents holding financial accounts in China, who have obtained the status of tax residents of other CRS countries or regions, if they hold financial assets in China, the relevant account information will also be disclosed to the corresponding country of the country.

In the identification of tax resident status, CRS is very strict in reviewing the non-resident tax status of the request, and there is a risk of being judged as a double tax resident for those who attempt to avoid taxation through overseas nationality.

Deliberate concealment and falsification of tax resident status may face civil or criminal penalties under the CRS regulations of the country where the financial institution is located, and may even violate the financial crime clauses such as money laundering in anti-money laundering laws.

The third is the Chinese tax residents who invest in the outer shell company.

It is common practice to set up a company in a country or region where overseas tax incentives are made. Individuals conduct various types of investment activities through the company's financial account. Under the CRS identification procedure, such enterprises with financial management purposes are likely to be identified as “negative”. Non-financial institutions" and directly point to the actual controller.

The capital operation information of overseas funds and stocks held through the company account will be fully reported, and the compliance problem of the account funds will be re-examined, and the investment income staying overseas will also have the risk of paying taxes.

Fourth, Chinese tax residents holding overseas insurance or annuity contracts.

The holder or beneficiary of the contract will be identified as the holder of the account, and the cash value of the contract and the distribution of income will be fully disclosed. The concealment or transfer of personal property through insurance policies and annuity plans will be monitored, and infringement of insurance information, such as the purchase of overseas foreign exchange life insurance, will also be subject to more stringent audits.

The fifth is the establishment of Chinese tax residents of offshore trusts.

The trust as a tax opaque entity is also included in the scope of CRS submission. The actual beneficiary of the trust will be penetrated and identified. The bank where the account is located needs to report the relevant information of the principal, trustee, beneficiary and protector to the tax authorities, including All information about account balances and account amount changes.

All funds under the trust will be known to the domestic tax authorities as the basis for collecting income tax. The advantages of confidentiality and non-transparency of offshore trusts will be greatly affected, and the wealth protection cover of high-net-worth individuals will gradually be unveiled.