CRS – Automatic Exchange of Financial Account Holder Information

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Author: Dominik Stuiber

Under increasing OECD and EU pressure of being labelled as a non-compliant jurisdiction, Hong Kong is considering expediting and expanding its Automatic Exchange of Information (AEOI) implementation.

Hong Kong legislated the adoption of the OECD Common Reporting Standard (CRS) in June 2016 by amending the Inland Revenue Ordinance (IRO). In familiar fashion, Hong Kong’s minimalistic approach to conduct AEOI on a bilateral basis only with partners with which a signed comprehensive avoidance of double taxation agreement (CDTA) or tax information exchange agreement (TIEA) is in place, contrasts the intention of the OECD framework. Hong Kong’s targeted approach currently includes merely two reportable jurisdictions to exchange information with in 2018 – Japan and UK. Earlier in March, Hong Kong concluded six more CAAs adding to the one signed with South Korea in January which have yet to enter into force. Account holders of other participating jurisdictions are excluded from the exchange of information until a Competent Authority Agreement (CAA) is signed and effected. In its implementation statement Hong Kong expressly excluded Multilateral Convention Agreements as a basis for the exchange of information.

Currently, financial institutions may collect information from account holders of all participating jurisdictions (“wider approach”), however, only the information of account holders in reportable jurisdiction (Japan and UK) would need to be transmitted to IRD for the exchange with the tax authorities of that other jurisdiction. For the newly added jurisdictions the account information would likely be subject to reporting starting from 2019.

The OECD’s Global Forum is conducting peer reviews on the implementation of CRS among the 100 jurisdictions that committed to AEOI. The peer reviews focus on a jurisdiction’s ability to co-operate. In order to avoid a negative or non-compliant rating, the Hong Kong government has identified 72 prospective AEOI partners, comprising of all Member States of the EU, Hong Kong's tax treaty partners which have committed to AEOI and other jurisdictions which have expressed interest to the OECD in exchanging information with Hong Kong and is proposing to include these in the list of reportable jurisdictions with effect of July 2017 as prospective AEOI partners. Furthermore, Hong Kong has indicated a possible departure of its initial approach by considering joining the Multilateral Convention on the Mutual Administrative Assistance in Tax Matters.

The redefined approach would result in the IRD storing financial account information collected from financial institutions from July 2017 and exchanging them with these prospective countries once a CAA is in force. The AEOI partner would, regardless of the CAA signing date, then be able to receive financial account information dating back to 2017.

What is a reportable account holder?

A reportable account holder is an individual that is a tax resident of a reportable jurisdiction, as well as the controlling persons of an entity account that is not an active entity. CRS refers for the definition of controlling person to the interpretation of FATF which specifies a controlling person as all natural persons that: -

  1. Directly or indirectly hold more than 25% of the shares or voting rights of an entity;
  1. Directly or indirectly hold the right to appoint or remove a majority of the directors of the board;
  1. Otherwise have the right to exercise, or actually exercise, significant influence or control; or
  1. Have the right to exercise, or actually exercise, significant influence or control over the activities of a trust or a firm that is not a legal person, but whose trustees or members satisfy any of the former conditions (in their capacity as such) in relation to the company, or would do so if they were individuals.
CRS therefore looks through successive layers of companies, trust and other arrangements.

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