8 Nov 2016
Chinese Tax Authorities to Crack Down On Tax Avoidance
The State Administration of Taxation (SAT) is in the process of soliciting public comments for the Administrative Measures for Due Diligence of Tax Matters in respect of Non-Resident Financial Account (Draft for Comments). According to the draft, financial institutions in China will be required to identify non-resident accounts from 1 January 2017, collect relevant account information and complete due diligence on individual high-net-worth accounts by end-2017 in a bid to crack down on the use of overseas accounts to evade tax.
Chinese residents who have emigrated overseas are classified as non-residents and their domestic financial account information falls into the scope of the measures. Domestic financial institutions will perform due diligence including identification and collection on the account information from 1 January 2017 and the information will be submitted to the taxpayer’s levy country in 2018.
According to the draft, Chinese residents do not need to declare account information, while non-residents will have to co-operate with financial institutions to declare account information in tax matters.
The SAT announced the Multilateral Convention on Mutual Administrative Assistance in Tax Matters on 18 January 2016, which came into force in China on 1 February 2016. The convention is set to be introduced on 1 January 2017.
In order to fulfill the international obligations of automatic exchange of financial account information in tax matters, the SAT has decided that the first information exchange will take place in 2018.
According to the draft, due diligence for the accounts of low-net-worth individuals and existing institutions will be completed in 2018. High-net-worth accounts refer to the financial accounts with aggregate balances exceeding RMB6 million as at 31 December 2016.
For high-net-worth accounts, SAT requires financial institutions to conduct electronic records retrieval and paper-based records retrieval, and make enquiries on account managers whether their clients are non-resident tax-paying individuals.
The collection of data includes not only deposit accounts, but also custodian accounts including securities brokerage accounts, wealth management products, funds, trust plans, pooled wealth management products, insurance contracts with cash value and partnership interests in private equity funds.
In September 2014, China pledged to implement at the G20 level the common reporting standard (CRS) in tax matters on financial accounts, which was commissioned by the Organisation for Economic Co-operation and Development (OECD) to enhance tax transparency through strengthening global tax co-operation to crack down on tax avoidance with the use of overseas accounts.
The draft is an important step in China's implementation of the CRS in tax matters on financial accounts.