Global Era of Taxation: No One Is an Outsider
In response to the Organization for Economic Co-operation and Development (OECD) releasing the “Amendments to the Common Reporting Standard” in June 2023, the Ministry of Finance proposed a draft amendment to the “Regulations Governing Financial Institutions’ Implementation of Common Reporting and Due Diligence Procedures” (CRS Regulations) last month. This amendment includes specified electronic money products and electronic payment institutions for the first time.
If the amendment is passed, electronic payment institutions will be treated as deposit-taking institutions, requiring them to conduct due diligence and reporting on accounts. The draft amendment also adjusts the reporting obligations for existing financial institutions.
In the future, accounts that need to be reported and accounts without information will require additional details beyond the account holder’s name or title, address, country or region of residence, and tax identification number. This includes specifying the account type, whether valid self-certification documents are provided, and whether it is a joint account along with the number of account holders. If the account belongs to a passive non-financial entity, additional details about the type of controlling person must be included in the reporting file.
What is CRS?
CRS stands for the “Common Reporting Standard,” which was released by the OECD in 2014 and is commonly referred to as the “global version of FATCA.” Its core concept is to establish a multinational cooperative network that allows the tax authorities of participating countries to automatically and regularly exchange financial account information of their tax residents.
Why is CRS Necessary?
In the wave of globalization, it has become increasingly common for individuals or businesses to hide assets overseas to evade taxes, eroding the tax base of various countries. The emergence of CRS aims to create a more transparent international tax environment by promoting cooperation among countries to “uncover” hidden financial assets abroad, effectively preventing tax evasion through cross-border information asymmetries.
Impact of CRS on the General Public
The primary targets of CRS are individuals or entities that hold financial accounts in participating countries. For most individuals who only hold financial accounts in Taiwan and have straightforward tax identities, the impact is minimal.
However, special attention must be paid in the following situations:
- Holding overseas financial accounts: Taiwanese tax residents with bank deposits, insurance policies, or securities accounts in partner countries such as Japan, Australia, or the UK.
- Having multiple tax identities: Individuals may be recognized as tax residents by multiple countries or regions due to dual nationality, long-term residence abroad, or frequent cross-border business activities.
- Holding assets through offshore companies or trusts: CRS has a “look-through principle,” which will trace to the natural persons with substantial control.
Experts: Immediate Preparations Are Crucial in Response to CRS
Li Jiawen, a senior accountant at KPMG’s tax department, recommends that electronic payment institutions analyze whether their issued electronic money products meet the definition of “specified electronic money products” according to the draft and understand the content of the CRS Regulations early to prepare in advance.
According to the draft provisions, if a product has features such as being reloadable, cash withdrawal, and payment functions, it may be determined that due diligence and reporting are required.
Furthermore, electronic payment institutions can review and assess their current customer registration processes to ensure they meet the due diligence requirements outlined in the CRS Regulations, such as incorporating customer tax residency identification processes and establishing relevant internal controls and operational processes to facilitate future internal audits and external inspections.
According to the current CRS Regulations, financial institutions must confirm whether customers are tax residents of reportable countries and report eligible accounts.
It is worth noting that most electronic payment operators complete customer registrations online; thus, whether their existing system functionalities can support the data retention and reporting required by CRS is also an important issue.
Li Jiawen reminds electronic payment operators to verify whether the information retained by their current systems is sufficient and assess whether to add fields for tax identities and self-certifications to ensure compliance with reporting requirements in the future.
Additionally, regarding the strengthened reporting requirements this time, Li Jiawen pointed out that financial institutions should examine whether the information retained in their internal systems is sufficient to meet the new reporting data requirements. If it cannot meet these requirements, it is recommended to make adjustments in advance to facilitate future reporting.
Li Jiawen emphasized that this draft amendment indicates a trend towards expanding the applicability of CRS Regulations and reporting requirements. Relevant operators should proactively review their current customer information collection and management processes and make adjustments to comply with future reporting requirements, ensuring compliance and reducing potential risks.