China takes the next step
26 October 2016
On 14 October, China took the next stage towards fully implementing the Common Reporting Standard (“CRS”). The country has now published its implementation plan for its FIs that will be required to undertake due diligence and reporting in respect of relevant customers.
The incentive for the Chinese authorities to implement CRS is the value of information that they expect to receive from overseas. China, like the US, taxes on the basis of citizenship as well as residence. It anticipates that there are substantial undeclared assets that are held by non-residents. The information that China receives in reciprocation for that it will provide under CRS will be invaluable to it in this regard.
How will this impact on FIs outside China
There is likely to be considerable concern amongst certain customers who have been living outside China for many years who may not realise that they may still have tax obligations in that country. In addition, many such customers may be completely unaware that information will be exchanged in 2018.
Accordingly, FIs will need to carefully consider their customer communication strategies to ensure that this is addressed. When developing the strategy, FIs will need to carefully balance the need to educate their customers, whilst not giving tax advice. In addition, they will also need to develop suitable escalation procedures in the event that any customer admits to committing tax evasion.
FIs may also wish to consider whether to notify individual customers of the actual details that have been reported so that customers have the information that they need to hand. What steps must China still overcome In order to be able to receive data under CRS, China must convince the global forum that it will apply suitable standards of data protection. These must be at least the equivalent of those that would apply in the EU to ensure that data could legally be exported. They will also need to develop an inspection and penalty regime covering the obligations of their own domestic FIs.
What should FIs do now? FIs will need to plan:
their customer communications strategy;
how they will handle customer queries without giving tax advice; and
training of front-line personnel
We would be pleased to have a complimentary discussion with you to discuss the potential impact of the Notification Regulations with you in more detail. To arrange a discussion or further information, please contact a member of our team.
Tel: +44 (0) 203 865 0626
Senior Manager Tel: +44 (0) 203 865 0625
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