Tax Services

 

Common Reporting Standard (CRS) and Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI)

The most notable and the most drastic change in the worldwide tax framework in recent years is the “Standard for Automatic Exchange of Financial Account Information in Tax Matters” (AEOI), commonly referred to in its abbreviation the Common Reporting Standard (CRS) developed by the OECD.

The Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) is calling on governments to collect financial account information of overseas tax residents from their financial institutions and exchange the information with jurisdictions of residence of the relevant account holders on an annual basis. Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) involves systematic and periodic transmission of financial account information by the source jurisdiction to the jurisdiction of residence of the account holders concerning all types of investment income, account balances or values, and sales proceeds from financial assets on an annual basis.

Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) comprises of a Model Competent Authority Agreement (“Model CAA”); this is a template for the agreements on Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) between competent authorities, typically the tax authorities, and the Common Reporting Standard (CRS); this specifies the requirements and procedures for information collection and exchange. More than 100 jurisdictions worldwide have committed to the implementation of Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI).

Common Reporting Standard (CRS) affects individual account holders and entity accounts of passive income Non-Financial Entities (“NFE”) whose controlling persons are tax resident in a Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) partner jurisdiction following a four-step identification:

  • Step 1: Is the Account Holder a Reportable Jurisdiction Person?

A Reportable Jurisdiction Person is an individual or Entity resident in a Reportable Jurisdiction for tax purposes under the laws of that jurisdiction or where their effective management is if they do not have a tax residence. A Reportable Jurisdiction is a jurisdiction with which an agreement is in place for the automatic exchange of information.

  • Step 2: Is the Account Holder a Reportable Person?

The Reportable Jurisdiction Person will be a Reportable Person unless specifically excluded from being so. The term “Reportable Person” means a Reportable Jurisdiction Person other than: (i) a corporation the stock of which is regularly traded on one or more established securities markets; (ii) any corporation that is a Related Entity of a corporation described in clause (i); (iii) a Governmental Entity; (iv) an International Organisation; (v) a Central Bank; or (vi) a Financial Institution.

  • Step 3: Is the Account Holder a Passive Non-Financial Entity?

The general rule is that a Passive NFE is an NFE that is not an Active NFE. The definition of Active NFE essentially excludes Entities that primarily receive passive income or primarily hold amounts of assets that produce passive income (such as dividends, interest, rents and royalties). An exception to this is an Investment Entity that is not a Participating Jurisdiction Financial Institution, which is always treated as a Passive NFE.

  • Step 4: Does the Entity have one or more Controlling Persons which are Reportable Persons?

If the Entity Account Holder is a Passive NFE then the Financial Institution must “look-through” the Entity to identify its Controlling Persons. If the Controlling Persons are Reportable Persons then information in relation to the Financial Account must be reported, including details of the Account Holder and each reportable Controlling Person. The term Controlling Persons corresponds to the term ‘beneficial owner’ as described in the Financial Action Task Force (FATF) Recommendations. Control over the Entity may be exercised by direct ownership (or shareholding) or through indirect ownership (or shareholding) of one or more intermediate Entities. If no such person exists, then any natural person that otherwise exercises control over the management of the Entity (e.g., the senior managing official of the company).

  • When does the exchange of collected information start in Hong Kong?

Swift implementation of Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) is necessary for Hong Kong as it will need to undergo the Phase three peer review by the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes in the first half of 2018. Therefore it is widely believed that Hong Kong will fully implement Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) before this review in order to get rated compliant or at least largely compliant. The Phase two peer review by the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes was conducted in 2013 and it is clearly visible that the Hong Kong Government is taking serious steps to introduce more measures especially in regard of information exchange and to intensify its efforts to get an amble rating from the OECD. Following the enactment of the Inland Revenue (Amendment) (No. 3) Ordinance 2016, Hong Kong aims to identify at least one jurisdiction from the existing comprehensive double tax agreement / arrangement (“CDTA”) and tax information exchange agreement (“TIEA”) partners as a first Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) partner and conclude negotiations with it to enable FIs in Hong Kong to start conducting due diligence procedures in respect of their financial accounts in 2017.

By September 2017 FIs are believed to register with the IRD and afterwards in January 2018 they will receive the first Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) returns from the IRD. By May 2018 FIs will then file the Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) returns to the IRD. However, there will be some uncertainty and the procedure might be different from FI to FI. The only certainty is, that the IRD will release collected information in 2018.

  • With whom will the collected information be exchanged?

Generally the collected information will be exchanged among relevant tax authority of all Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) partner jurisdictions that signed the Convention on mutual administrative assistance in tax matters. In case that jurisdictions have not signed this Convention, collected information will be exchanged on basis of bilateral treaties with relevant tax authority of foreign jurisdictions. These bilateral treaties are CDTA and TIEA.

  • How can Mühler McKay assist you with the Common Reporting Standard (CRS) regime?

MühlerMcKay can help your business with the needed changes in regard of the Common Reporting Standard (CRS) and Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI). Our Common Reporting Standard (CRS) and Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) services generally include:

  • Assessing the situation of your business in regard to the Common Reporting Standard (CRS) and Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI)

We can assist you with a detailed examination of your current situation and develop a strategy to resolve all identified issues in regard of the Common Reporting Standard (CRS).

  • Tax efficient structuring of your business operation

We can help you with structuring your entire business or operations in a tax efficient manner, especially in regard of the requirements of the Common Reporting Standard (CRS) and Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI).

  • Tax efficient Intellectual Property (IP) structuring

We can help you with structuring your Intellectual Property (IP) in a tax efficient manner, especially in regard of the requirements of the Common Reporting Standard (CRS) and Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI).

  • Dealing with different jurisdictions and their unique tax regulations

We are experienced in dealing with different jurisdictions and their unique tax regulations.

  • Cross-Border Transactions

We provide tax structuring advise to develop appropriate tax strategies to cross-border transactions, especially in light of Common Reporting Standard (CRS) and Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI).

  • Supporting services

Mühler McKay also provides supporting services for business operations such as assistance with incorporation services / company formation services, advising on tax efficient legal structures for (groups of) companies (corporations, for instance a Hong Kong Limited Company, partnerships, branches, representative offices), bookkeeping and accounting (according to Hong Kong principles) as well as audit arrangement, general corporate compliance like provision of company secretary services (in Hong Kong) as well as providing a registered address or virtual office in Hong Kong, obtaining obligatory registrations, permits and licenses, as well as employment advice, including Hong Kong work visa application and general Common Reporting Standard (CRS) and Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) services.

Mühler McKay offers comprehensive Common Reporting Standard (CRS) and Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) services which include arranging businesses and operations in a tax efficient manner in order to bring down your effective global tax rate, satisfy international tax compliance obligations and mitigate taxation risks.

We appreciate the opportunity to assess your Common Reporting Standard (CRS) and Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) situation and assist you to obtain tax efficiencies in regard of your international business.

Please contact us or visit us in Hong Kong for your first consultation for our Common Reporting Standard (CRS) and Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) services.

Mühler McKay based in Hong Kong is a business advisory firm with worldwide reach and renders, among others, general international tax and expert Common Reporting Standard (CRS) and Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) services to a diversified international client base from various industries and sizes.