CRS (Common Reporting Standards) is the latest protocol passed by the OECD countries in 2014 to help curb tax evasion and fraud. The protocol borrows from the US FATCA that was passed after the 2008/2009 financial crisis. CRS is a protocol for Automated Exchange of Financial Information between supporting jurisdictions.
Because of the dangers and risks that arise from tax evasion and fraud, all OECD members and even non-members ratified the protocol. More than 95 jurisdictions have committed to implementing CRS. Hong Kong is one of them. To harmonize CRS with other financial and tax laws, Hong Kong passed the IRD No 3 bill into law in June 2016. Under the new law, a lot of emphasis is given to banks and other reporting institutions. Here is a closer look at the Hong-Kong bank account CRS reporting.
Reportable bank account under the CRS framework
The Hong Kong CRS framework tasks reporting institutions with the role of identifying reportable accounts and compiling a report. Though other entities such as insurance companies have the responsibility of identifying the reportable accounts, the biggest role is played by banks.
The first role in CRS reporting is identifying the reportable accounts. These are accounts held by non-residents. The foreigners must be from a jurisdiction that has entered into comprehensive avoidance of double taxation agreement (CTDA) with Hong Kong and further established a competent authority agreement (CAA). This means that an account of a person from a jurisdiction that has not entered into a CAA or CTDA with Hong Kong is not reportable.
At this point, the Hong-Kong bank account reporting framework clarifies that a bank can exempt an account that is not deemed at risk of evading tax.
Banks can collect account info without factoring de minimis threshold
One notable thing about the IRD common reporting Standard law is that it appreciates the complexity and costs involved in gathering info on reportable accounts. Well, think of a bank with more than 1 million accounts and new applications flowing every day. Section 17D of the new CRS reporting allows banks to gather info from all accounts through appropriate technologies and then to filter them to compile the report on the reportable accounts.
The banks are also allowed to pick the technology they consider more reliable, applicable, and cost-effective in their situations. For example, most banks prefer to hook the account reporting models to their standard auditing procedures. This will help them to avoid overheads that would come with hiring an entirely new team for the new CRS reporting requirements.
New accounts opening and status shift in CRS reporting
The biggest task for banks is identifying the reportable accounts and gathering the financial information. Even with this, the banks have to be cognizant of the shifts espoused in the Hong Kong bank account reporting law.
If a reportable account shifts from a high risk to low-risk status, a bank can drop it from the reportable account list.
The bank can omit a reportable account when the person shifts permanently to Hong Kong.
Though a jurisdiction might not have entered into the appropriate agreements as espoused in the Hong Kong new IRD bill No 3, the bank should be on the lookout.
While Hong Kong has always worked closely with financial institutions, the IRD bill on CRS reporting has made it even more critical. Banks must be extra vigilant and gather all the info on reportable accounts by 31st December of 2017. The report should be submitted to IRD so that it is ready for sharing with the cooperating jurisdictions.