Global Era of Taxation: No One is an Outsider
The Ministry of Finance has responded to the Organization for Economic Cooperation and Development (OECD) releasing the “Amendments to the Common Reporting Standard” in June 2023 by proposing a draft amendment to the “Guidelines for Financial Institutions to Implement Common Reporting and Due Diligence Procedures” (CRS Guidelines) last month, which for the first time includes Specific Electronic Money Products and electronic payment institutions.
If the amendment is passed, electronic payment institutions will be treated as deposit-taking institutions and will be required to conduct due diligence and reporting on their accounts. The amendment also adjusts the reporting requirements for existing financial institutions.
In the future, accounts that need to be reported and those without information must provide, in addition to the account holder’s name or business name, address, country or region of residence, and tax identification number, supplementary details on account type, whether valid self-certification documents have been provided, whether it is a joint account, and the number of account holders. If the account belongs to a passive non-financial entity, additional information regarding the type of controlling persons must be included in the reporting files.
What is CRS?
The full name of CRS is the “Common Reporting Standard,” released by the OECD in 2014 and referred to externally as the “Global FATCA.” The core concept is to establish a cross-border cooperative network that allows tax authorities in participating countries to automatically and periodically exchange financial account information of their tax residents.
Why is CRS Necessary?
In the wave of globalization, the situation where individuals or enterprises hide assets overseas to evade taxes has become increasingly common, eroding the tax base of various countries. The emergence of CRS aims to create a more transparent international tax environment, making hidden financial assets abroad “transparent” through cooperation among countries, thus effectively preventing tax evasion through cross-border information asymmetry.
Impact of CRS on the General Public
The primary targets of CRS are individuals or entities with financial accounts in participating countries. For most individuals who only hold financial accounts in Taiwan and have a straightforward tax status, the impact is minimal.
However, the following situations require special attention:
- Holding overseas financial accounts: Taiwanese tax residents who have bank deposits, insurance policies, or securities accounts in partner countries such as Japan, Australia, and the United Kingdom.
- Having multiple tax identities: Individuals who 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 the “look-through principle,” which traces back to the natural persons who have ultimate control.
Experts: Immediate Preparation Required for CRS New System
Senior accountant Li Jiawen from KPMG suggested that electronic payment institutions should first analyze whether the electronic money products they issue meet the definition of “Specific Electronic Money Products” according to the draft, and understand the content of the CRS Guidelines early to facilitate preparations.
According to the provisions of the draft, if the product possesses functions such as being reloadable, cash withdrawal, and payment capabilities, it may be classified as an account subject to due diligence and reporting.
Furthermore, electronic payment institutions can review and assess whether their current customer registration processes comply with the due diligence requirements specified in the CRS Guidelines, such as including identity verification of the customer’s tax residency and establishing relevant internal controls and operational processes to facilitate future internal audits and external inspections.
According to the current CRS Guidelines, financial institutions must confirm whether customers are tax residents of reportable jurisdictions and report eligible accounts.
It is noteworthy that most electronic payment providers complete customer registration online, thus whether their existing system functionalities are sufficient to support the data retention and reporting required by CRS has become a significant issue.
Li Jiawen reminded electronic payment providers to confirm whether the information retained in their current systems is sufficient and assess whether additional fields for tax identity and self-certification are needed to ensure compliance with reporting requirements in the future.
Additionally, regarding the enhanced reporting requirements, Li Jiawen pointed out that financial institutions should review whether the information retained in their internal systems is adequate to meet the new reporting data requirements. If not, it is advisable to make adjustments in advance to facilitate future reporting needs.
Li Jiawen emphasized that this draft amendment indicates a trend of expanding the applicability and reporting requirements of the CRS Guidelines. Relevant businesses should review their current customer information collection and management processes early and proactively adjust to meet future reporting requirements, ensuring compliance and reducing potential risks.