Professional Interpretation

The People’s Bank of China, State Administration of Taxation, State Administration of Foreign Exchange joint issued The Implementing Rules to The Due Diligence of Tax-Related Information of Financial Accounts Owned by Non-Residents in Deposit Financial Institution of Banking Business (hereinafter called “Rules”) in Dec. 18th 2017. The implementing rules provide a detailed operating guide for Chinese deposit financial institution in due diligence of tax-related information of financial accounts owned by non-residents. Banks should collect tax-related information of financial accounts owned by non-residents and submit them to the competent authorities according to the Rules. This is another progress made by domestic supervision department in enhancing transparency of cross-border financial account and fighting cross-border tax evasion. Therefore, the international business team of Beijing DOCVIT Law Firm is interpreting this important Rules as followed.

In May 2017, State Administration of Taxation, Ministry of Finance of People’s Republic of China, People’s Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission joint issued The Administrative Measures for the Due Diligence of Tax-Related Information of Financial Accounts Owned by Non-Residents，which means the “Chinese CRS” has been officially published. The Administrative Measures is designed to transform the international and common-used CRS to fit Chinese national conditions, and establish legal and operational basis for putting the CRS into effect in China.

1. The comparison betweenthe Rules and The CRS (issued by OECD)

1.1 Elucidation of relevant definition

Compared to the CRS, the Rules combined the feature of Chinese banking business, and made detailed elucidation of the following concept: financial account, special organization or entity, relevant demonstration materiel etc., which are more suitable for Chinese national conditions and made The Administrative Measures more operable.

The financial account as mentioned in the Rules refers to the accounts which opened by the account holders who need to perform current deposit business, time deposit business, credit card with pre-deposit function business, margin financial business, self-run financial business, precious metal business, treasury bonds business and financial derivatives business. The Rules stipulates the account holders should inform the bank within 30 days if their tax-related information altered, and there is no need to perform a due diligence of the four kinds of accounts mentioned by The Administrative Measures in Article 33(4), (5), (8).

1.2 Unified the procedure of due diligence

The Rules made further stipulations in due diligence procedure, such as the contradiction situations of rational check, which make it easier for banks to understand the regulatory standards and put relevant supervision requirements into effect.

1.3 Clarified the supervision requirements

In order to enhance the implement quality and make sure the supervision requirements can be carried out, the Rules, based on The Administrative Measures, clarified the inspection requirements and penalty provisions of The People’s Bank of China.

2. The implementation subjects of the Rules

The release subjects of The Administrative Measures are State Administration of Taxation, Ministry of Finance of People’s Republic of China, People’s Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission, and the release subjects of the Rules are The People’s Bank of China, State Administration of Taxation, State Administration of Foreign Exchange, which is to say the subject of supervising the exchange of financial accounts’ tax-related information has added a new one--- State Administration of Foreign Exchange. It’s quite understandable if related to The Opinions of the General Office of the State Council on Improving Anti-Money Laundering, Terrorist Financing and Tax Evasion Regulatory Systems and Mechanisms (Letter No. 84 [2017] of the General Office of the State Council) issued by General Office of the State Council in 2017. The Article 21 of The Opinions demands that “establish the cooperating system of fighting the custom-related crime”, “enhance the cooperation between anti-money laundering administrative departments and anti-smuggling custom departments, work together in fighting tax-evasion crime activities.”

3. The applicable subjects of the Rules

The applicable subjects of the Rules are “Deposit Financial Institutions of Banking Business”, which means all the commercial banks (including wholly foreign-owned bank, Chinese-foreign equity joint bank, the branch of foreign bank), postal savings banks of China, urban credit cooperatives, rural credit cooperatives established domestically and legally, including China development bank and policy banks.

The financial institutions mentioned by The Regulatory otherwise include deposit financial institutions, custodian institutions, investment institutions, special insurance institutions and their branches. The scope of the latter is much wider than the former, but for individuals and institution accounts holders, undoubtly, the biggest influence will be the banking financial institutions. Meanwhile, according to The Article 4 of the Rules, banks which have branches should carry out the due diligence of tax-relates information of financial accounts held by non-residents, and collect, record, report the relevant information.

4.The procedure of due diligence

The procedure of due diligence of high-net worth stock individuals’ accounts: 

The procedure of due diligence of low-net worth stock individuals’ accounts:

The Rules normalized the procedure of “due diligence of individual accounts”,“due diligence of institution accounts”of deposit financial institutions of banking business by clarified the situations of clear contradictions between the information of account holders and other information:

4.1 Personal Accounts:

(1) The identity information declared by account holders is unmatched with the information of existing accounts and collected by anti-money laundering procedure;

(2) Declared only as Chinese tax residents, but the nationality provided by account holders is foreign or the types of identity documents, present addresses, phone numbers are foreign or Hong Kong, Macao and Taiwan.

(3)Declared as non-resident, but the nationalities, types of identity documents, present addresses provided by account holders indicate otherwise.

(4) Other obvious contradicted situations.

4.2 Institutional Accounts:

(1) Declared information is unmatched with the information of existing accounts and collected by anti-money laundering procedure;

(2) Declared only as Chinese tax residents, but the registered addresses, phone numbers are foreign or Hong Kong, Macao and Taiwan.

(3) Declared as non-resident, but the nationalities of the account holders’ registered addresses or actual operating addresses indicate otherwise.

(4)Declared not as passive non-financial institutions, but its tax resident country (region) does not implement the standards for the automatic exchange of tax-related information of financial accounts.

(5) Other obvious contradicted situations.

5. Supervision and Penalty

The supervision and penalty provision of the Rules include the following aspects mainly:

5.1 Establish self-assessment mechanism

The Rules stipulate that banks should report the executive situation of The Administrative Measures to The People’s Bank of China, State Administration of Taxation, State Administration of Foreign Exchange in writing which should include the institution construction, business procedure, information submission, opinions and suggestions.

5.2 Implement supervision

The Rules clarified that The People’s Bank of China would carry out non-scheduled on-site or not on-site inspection of the institution construction, implementing situation, relevant materials storage, information submission of due diligence of tax-related information of financial accounts held by non-residents.

5.3 Specified penalty

If banks have relevant illegal behavior, they will correct in a circulated notice by The People’s Bank of China, besides being punished according to The Regulatory; If the circumstances are serious, the banks will also be punished by Law of the People’s Republicof China on the People’s Bank of China, Law of the People’s Republic of China on Anti-Money Laundering, and Regulations of the People’s Republic of China on Foreign Exchange Administration.

If the account holders have illegal behavior such as hide or forge  tax resident identities deliberately, they will be published by The People’s Bank of China according to relevant law and regulations, suspected criminal case will be transferred to judiciary authorities.