Beijing will require financial institutions to report detailed financial account information related to tax assessments of non-residents effective July 1 as it joins a global drive to adopt the Common Reporting Standard formulated by the Organisation for Economic Co-operation and Development to stem tax evasion through the use of offshore accounts.
Market watchers said the changes reflect efforts to align with global standards when compared with the draft version issued in October.
For instance, Beijing set up a designated website on the new compliance framework and updated wording in the rules to better align with global norms and with countries that have already adopted the framework, said Henry Wong, a KPMG tax partner in Shanghai.
“We have seen apparent efforts to better reflect global practices as Beijing is trying to go international in stipulating the tax reporting in line with the Common Reporting Standard,” Wong said.
The designated website offers an introduction to the rules as they apply in China, some guidance for industry players and frequently asked questions.
“All these come as a clear signal of [willingness] to follow the global practices as other nations and regions that have promised to join the scheme have done the same,” Wong said.
Kenny Lam, a PwC China tax partner for the financial services industry, said the tweaking of the currency denomination in yuan to US dollars was another sign.
Lam suggested that financial institutions make sufficient preparation for the new compliance requirements as it will take time to include the tax reporting content into their IT system as well as the already complex know-your-customer (KYC) )and anti-money laundering requirements.
All these come as a clear signal of [willingness] to follow the global practices
Henry Wong, a KPMG tax partner
In addition, financial institutions need time to train their staff on properly informing clients of the requirements, he noted.
“That may explain why the latest rule grants financial institutions another six-month period to better cope with it as the draft [version] had been planned to take effect since January 1,” he noted.
Rebecca Wang, a PwC China private client services tax partner, said the additional time also helps wealthy individuals better understand the impact of the changes.
“High net-worth individuals with overseas assets have been keen to closely follow updates of the requirements as they might be exposed to tax risks with their financial assets overseas being disclosed,” she said.
With the framework in place, China can swap information with other nations, so Beijing will be able to monitor Chinese nationals’ overseas financial assets and income, meaning the days of concealing foreign assets will soon end.
Read the original story on the South China Morning Post .
