SAR in the act as noose tight­ens on rich tax evaders

China Daily (Hong Kong) - - HK | BUSINESS - By LUO WEITENG in Hong Kong sophia@chi­nadai­lyhk.com

A “game chang­ing” tax trans­parency ini­tia­tive poised to re­shape the in­ter­na­tional tax land­scape is on track in Hong Kong and world­wide, putting tax ad­vis­ers and their clients on a tight sched­ule to lay out a vi­able so­lu­tion.

The SAR be­came one of the 47 “sec­ond-wave adopters” of the Com­mon Re­port­ing Stan­dard (CRS) regime for the Au­to­matic Ex­change of In­for­ma­tion (AEOI) be­tween par­tic­i­pat­ing ju­ris­dic­tions in June this year.

The regime, is­sued by the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and De­vel­op­ment (OECD) in July 2014, aims to com­bat tax eva­sion and profit shift­ing, with more than 100 ju­ris­dic­tions, in­clud­ing ma­jor fi­nan­cial cen­ters such as the Bri­tish Vir­gin Is­lands, the Cay­man Is­lands, Dubai, Sin­ga­pore and Switzer­land, com­mit­ting them­selves to com­ply­ing with it.

Fi­nan­cial in­sti­tu­tions in over 50 ju­ris­dic­tions around the world, in par­tic­u­lar, are al­ready geared up to pass on in­for­ma­tion on their clients and ac­counts, col­lected since Jan­uar y this year, to their coun­try of res­i­dence in 2017.

Like­wise, the rad­i­cal tax re­form in Hong Kong is well un­der­way as lo­cal fi­nan­cial in­sti­tu­tions are re­quired to start con­duct­ing due dili­gence pro­ce­dures for all pre­ex­ist­ing and new fi­nan­cial ac­counts from early next year, paving the way for fil­ing the first AEOI re­turns con­tain­ing “re­portable” in­for­ma­tion up to late 2017, to the In­land Rev­enue Depart­ment by May 2018.

“Ba­si­cally, it ’s more of a big trend to­day where ju­ris­dic­tions across the globe are join­ing hands to in­crease tax trans­parency and work out

It’s more of a big trend to­day where ju­ris­dic­tions across the globe are join­ing hands to in­crease tax trans­parency and work out a stan­dard­ized tax frame­work on a global scale.”

a stan­dard­ized tax frame­work on a global scale,” said An­thony Tam, chair­man of the tax­a­tion fac­ulty ex­ec­u­tive com­mit­tee at the Hong Kong In­sti­tute of Cer­ti­fied Pub­lic A c c o u n t a n t s . “A s a w o r l d renowned fi­nan­cial cen­ter, Ho n g Ko n g i s , o f c o u r s e , jump­ing on the band­wagon with its re­gional coun­ter­parts like the Chi­nese main­land and Sin­ga­pore.”

The city has long been play­ing an ac­tive role in clamp­ing down on anti-money laun­der­ing ac­tiv­i­ties to sharpen its edge as a well-es­tab­lished and well-reg­u­lated fi­nan­cial mar­ket. This time, it looks to stand at the van­guard of the fight against tax avoid­ance, Tam told China Daily.

There’s lit­tle time to waste for tax ad­vis­ers, as well as high-net-worth in­di­vid­u­als, who may bear the brunt of the global tax pol­icy tight­en­ing-up.

“CRS is in­deed a wa­ter­shed in the wealth man­age­ment busi­ness with sig­nif­i­cant ram­i­fi­ca­tions for high-net- w o r t h f a m i l i e s ,” s a i d L e e Woon Shiu, Hong Kong-based head of wealth plan­ning at Bank of Sin­ga­pore.

“Sim­i­lar to the US For­eign Ac­count Tax Com­pli­ance Act and the Euro­pean Sav­ings Direc­tive pre­vi­ously, it com­pels high-net-worth fam­i­lies to be fully tax com­pli­ant in all their fi­nan­cial af­fairs and also be more strate­gic in the de­ploy­ment of their fam­ily hu­man cap­i­tal,” Lee told China Daily in an email.

In­ter­est­ingly, he doesn’ t think that the im­mi­nent in­tro­duc­tion of CRS would make Hong Kong, whose sim­ple and low-rate tax code has long un­der­pinned its global com­pet­i­tive­ness ac­cord­ing to a study by CPA Aus­tralia, lose its al­lure to the wealthy as a once-pop­u­lar “tax haven”.

“Just the op­po­site, we see the so­phis­ti­cated clients with more sub­stan­tial wealth be­com­ing more in­ter­ested in es­tab­lish­ing a per­ma­nent tax res­i­dence in Hong Kong, and in­creas­ing their busi­ness ac­tiv­i­ties or even strate­gi­cally es­tab­lish­ing their per­ma­nent re­gional head­quar­ters in the ter­ri­tory, apart from merely us­ing the city as a pri­vate bank­ing book­ing cen­ter,” he said.

And the idea of im­mi­grat­ing to Hong Kong or other be­nign ju­ris­dic­tions has been noted as be­ing in­creas­ingly rel­ished by rich peo­ple.

“Howe ver, it ’s cru­cial to dis­tin­guish be­tween im­mi­gra­tion for the pur­pose of ac­quir­ing a new tax res­i­dency in a tax-friendly ju­ris­dic­tion, which may be use­ful from a CRS per­spec­tive, com­pared to im­mi­gra­tion with the ob­jec­tive of ac­quir­ing a new pass­port or na­tion­al­ity, which may not be use­ful, given that the CRS is based pri­mar­ily on tax res­i­den­cies and not the na­tion­al­i­ties of con­trol­ling par­ties.”

A l l i n a l l , Ta m b e l i e v e d w h a t ’s r e a l l y t r u e f o r t h e wealthy is the grow­ing dif­fi­culty of hid­ing their wealth, those who may not al­ways be on the gov­ern­ment radar.

“With the tax au­thor­i­ties get­ting more power to mon­i­tor over­seas ac­counts of cit­i­zens and track the fi­nances of the wealthy, the global tax trans­parency is a sure thing,” he said.

“It may take some time, but it won’t be long. Af­ter all, 2018 is an im­ple­men­ta­tion time­line set by the OECD,” he noted.

In par­tic­u­lar, the com­plex and strin­gent frame­work of tax rules would some­how get in the way of wealthy main­land peo­ple park­ing money in large sums out of the bor­der via the red-hot Hong Kong in­sur­ance prod­ucts.

“We do ex­pect the Hong Kong in­sur­ance in­dus­try to tighten up its com­pli­ance regimes and en­sure that all busi­nesses with main­land clients are con­ducted in a man­ner com­pli­ant with the rule of law both in Hong Kong and on the Chi­nese main­land,” Lee ob­served.

Yet, the in­di­vid­ual in­come tax and for­eign ex­change con­trol regimes have al­ready been firmly en­trenched as part of the le­gal frame­work of the world’s sec­ond-largest econ­omy.

The CRS regime, fit­ting in well with the na­tion’s polic ymak­ers’ de ter­mi­na­tion, may merely strengthen the au­thor­i­ties’ abil­ity in en­forc­ing the main­land’s laws and en­sure com­pli­ance by its tax res­i­dents, Lee added.

Just the op­po­site, we see the so­phis­ti­cated clients with more sub­stan­tial wealth be­com­ing more in­ter­ested in es­tab­lish­ing a per­ma­nent tax res­i­dence in Hong Kong.”

An­thony Tam, chair­man of the tax­a­tion fac­ulty ex­ec­u­tive com­mit­tee at the Hong Kong In­sti­tute of Cer­ti­fied Pub­lic Ac­coun­tants

Lee Woon Shiu, Hong Kong­based head of wealth plan­ning at Bank of Sin­ga­pore

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