Finally after seven months of waiting, the Administrative Measures on Due Diligence of Tax Related Information in respect of Non-Resident Financial Accounts (the “Measures”) were jointly promulgated by the State Administration of Taxation (“SAT”), Ministry of Finance (“MOF”), People’s Bank of China (“PBOC”), China Banking Regulatory Commission (“CBRC”), China Securities Regulatory Commission (“CSRC”) and China Insurance Regulatory Commission (“CIRC”) on May 19, 2017.

Compared to the previous draft for public comments, there is no material change in the Measures. For relevant background information, please refer to our previous article: “PRC issued consultation paper for CRS/FATCA implementation rules”.

Interpretation of the Measures

The Measures are composed of:

1.Announcement of SAT, MOF, PBOC, CBRC, CSRC and CIRC on publishing the Measures

As the body text of the Measures, this announcement sets out in detail the scope of entities required to perform due diligence obligations, the different types of financial accounts and account holders subject to due diligence, the due diligence procedures and documentation requirements, the information to be reported, etc.

It is especially noteworthy that, in addition to traditional financial institutions such as banks, securities companies, fund management companies, insurance companies and trust companies, non-financial institutions that are engaged in asset management business (e.g. private investment fund managers) are also treated as financial institutions under the Measures and should fulfil the due diligence and reporting obligations, which is consistent with international practice.

According to the Measures, mutual funds, asset management plans, private investment funds and trust plans are also required to fulfil the due diligence and reporting obligations, but they are allowed to entrust their managers to conduct related work.

The Measures make it clear that the information of non-resident accounts for the previous calendar year should be reported each year by May 31. However, the specific reporting method and requirements are yet to be issued separately by regulatory authorities.

The Measures further require financial institutions to register on SAT’s website by December 31, 2017 so as to facilitate the follow-up reporting work. This website is not yet available as of this writing.

2.Annex 1: Self-Certification of an Individual’s Tax Residence (Sample)

Financial institutions could use this sample to conduct due diligence of individual clients. It might be difficult for a client to determine its tax residence. Hence, SAT has launched a special website to sum up the standards for determining the tax residence of different countries (regions) in order to facilitate the client’s judgment.

3.Annex 2: Self-Certification of an Entity’s Tax Residence (Sample)

Financial institutions could use this sample to conduct due diligence of institutional clients.

It is worth noting that the scope of financial institutions under the Measures is different from that under previous PRC law. For example, finance companies and financial leasing companies are not financial institutions under the Measures and therefore are not required to fulfil the due diligence obligations, instead, they shall report their tax residence as non-financial institutions.

Considering that it could be difficult for a client to determine its tax residence, the Measures and the explanatory notes in this sample have given a succinct account of the standards for determining tax residence. However, since the tax residence needs to be determined by a client in conjunction with its accounting data, it may take some time for the client to draw the final conclusion.

4. Annex 3: Self-Certification of a Controlling Person’s Tax Residence (Sample)

Any controlling person owning more than 25% of the equity interest or share of a passive non-financial entity or otherwise controlling that passive non-financial entity should complete this self-certification which almost has the same content as contained in the Self-Certification of Annex 1.

5.Commentary on the Measures

This is a very important document that details the background for unveiling the Measures as well as some noteworthy matters.

In particular, this commentary provides a link of a special website in relation to the Measures and associated international treaties and standards (http://www.chinatax.gov.cn/aeoi_index.html). On this website, SAT provides more elaborated background information, well displayed due diligence procedures, the text of related laws and regulations and international treaties, the encoding rules for taxpayer identifying number and the answers to a number of frequently asked questions.

In addition, this special website will also be used for the registration of financial institutions subject to the due diligence obligations.

How to coordinate CRS due diligence with FACTCA due diligence

According to the third Q&A in the commentary on the Measures, the Measures are rules applicable to CRS without addressing the requirements under FATCA, and the FATCA due diligence should be performed in accordance with the applicable intergovernmental agreement and implementing rules adopted by regulatory authorities therefor. However, according to the third Q&A in the commentary on the Measures and the information on the website of the US Department of Treasury, the PRC government, as of this writing, has neither entered into any intergovernmental agreement with the US government nor released any implementing rules in respect of FATCA due diligence.

That being said, since the requirements under CRS are mostly the same as those under FATCA and an intergovernmental agreement is highly likely to be concluded between the United States government and the PRC government, a PRC entity may seek a “one-step accomplishment” by combining the due diligence requirements under CRS with those under the upcoming intergovernmental agreement in respect of FATCA and consolidating relevant self-certifications and account opening documents.

What actions should a PRC entity take?

The Measures will be implemented from July 1, 2017 and PRC entities only have about forty calendar days left to comply with the Measures. To this effect, a PRC entity should take the following actions as soon as possible:

  • determine whether it is a financial institution under the Measures and whether it is required to fulfil the due diligence and reporting obligations;
  • determine whether a plan or product (if any) sponsored or managed by it would separately constitute a financial institution under the Measures and whether it needs to fulfil the due diligence and reporting obligations as an entrusted person of such plan or product;
  • undertake an in-depth study of the Measures, launch training programs for related personnel and ensure their correct understanding of the Measures and the due diligence procedures;
  • (if it is a financial institution under the Measures) formulate the due diligence rules and procedures in compliance with the Measures and scrutinize and update necessary account opening documents and forms;
  • (if it is a financial institution under the Measures) determine whether to implement FATCA due diligence requirements in a consolidated manner and to engage in FATCA compliance.