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Taiwan Adopts OECD Tax Data Sharing Protocols but Stays Non-Member

Concerned over possibly being condemned as something of a rogue tax regime, Taiwan has implemented the Common Reporting Standard despite not being a paid-up member of the Organisation for Economic Cooperation and Development.

Photo: Unstashable: Cyber co-operation set to seal the fate of foreign fund flight. (Shutterstock.com)
Unstashable: Cyber co-operation set to seal the fate of foreign fund flight.
Photo: Unstashable: Cyber co-operation set to seal the fate of foreign fund flight. (Shutterstock.com)
Unstashable: Cyber co-operation set to seal the fate of foreign fund flight.

Taiwan has announced plans to toughen up its tax evasion regime. Over the course of the last 12 months, it has revised its anti-money laundering legislation and has issued new due diligence guidelines to its financial institutions. Now it is planning to go further and adopt the Organisation for Economic Cooperation and Development (OECD)'s Common Reporting Standard (CRS), an international agreement that governs the automatic exchange of financial information between tax authorities around the world. This is despite the territory not officially being a signed-up member of the OECD.

The OECD introduced the CRS in 2014 as a means of establishing an internationally-recognised channel for sharing financial information between participating tax jurisdictions, with 100 countries and regions around the world now signed up to the agreement. By requiring financial institutions to check the tax residency status of their account holders, it ensures governments receive accurate information about their residents' finances abroad, helping improve tax transparency and combat cross-border tax evasion.

As well as Taiwan, China, Hong Kong and Macau have also all adopted the CRS protocol this year. In Taiwan's case, the Regulations Governing the Implementation of the CRS and Due Diligence for Financial Institutions (also called CRS Regulations) were passed in November last year and, as a result, the territory's financial institutions will begin the required due diligence procedures in 2019, with the exchange of financial data expected to begin by September 2020.

Before exchanging financial account information with another tax jurisdiction, it is necessary that all the parties concerned sign the Competent Authority Agreement (CAA).  In line with this, Taiwan is committed to negotiating CAAs with the 32 countries with which it has already signed tax agreements, including Singapore, Malaysia, New Zealand, Australia and Canada.

Taiwanese financial institutions have also had to gear up for CRS implementation. All the territory's banks, life insurance companies, securities companies, investment and trust companies, as well as any foreign banks operating in Taiwan, are obliged to initiate the relevant due diligence procedures. The first stage of the process, which must be completed by the end of 2019, will focus on new accounts and existing high net-worth accounts (accounts with a balance of over US$1 million as of the end of 2018). The second stage will target existing lower net-worth accounts (accounts with a balance of less than $1 million as of the end of 2018) and the accounts of all legal entities. All such activity must be concluded by the end of 2020.

It is hoped that compliance with the internationally-recognised standards on tax data sharing will boost Taiwan's global standing, and accelerate its own economic development. According to PwC, the international accountancy group, implementing CRS will not only enhance Taiwan's own anti-tax avoidance measures, but will also allow it to fully participate in all the major international tax co-operation mechanisms.

Despite this upside, there are also concerns that the CRS may have an adverse impact on some Taiwanese businesses and individuals. In the past, many of the territory's businesses have invested extensively overseas, while a large number of its high-earning individuals and enterprises have set up companies and opened accounts in tax havens in order to reduce their tax liabilities. Now, though, the disclosure made possible via the CRS will make it impossible for taxpayers to conceal any of their overseas-held financial resources.

Photo: Will production relocation funding fall foul of money laundering legislation? (Shutterstock.com/humphery)
Will production relocation funding fall foul of money laundering legislation?
Photo: Will production relocation funding fall foul of money laundering legislation? (Shutterstock.com/humphery)
Will production relocation funding fall foul of money laundering legislation?

Many Taiwanese businesses and individuals, however, have accounts in Hong Kong or on the Chinese mainland and, although both have signed up to the CRS, neither yet has an active tax agreement in place with Taiwan. Indeed, although the mainland and Taiwan signed a tax co-operation agreement back in 2015, a series of political disagreements has seen it yet to be ratified. Overall, this will mean, in the short-term at least, any Taiwanese assets held in mainland China or Hong Kong will remain off the ledger.

Another problem that could arise from Taiwanese moves to adopt the CRS, at least according to accountancy giant KPMG, is that, in the past, many businesses based in the territory relocated funds to Hong Kong, Singapore or another third-party nation, prior to using them to develop production facilities on the mainland. This was largely because, in the past, direct cross-Strait investment was impossible. The imposition of increasingly stringent controls on foreign exchange over the past five years, however, has left some of this funding likely to fall foul of either or both the Money Laundering Control Act or the CRS.

Indeed, there have already been reports of some Taiwanese businesses having their accounts frozen or being served notice to transfer out their funds. In order to overcome this problem, the territory's Ministry of Finance is looking at ways to help Taiwanese firms repatriate their existing overseas funds.

Robert Kang, Special Correspondent, Taipei

Content provided by Picture: HKTDC Research
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