Photo/Shetuwang

Sept. 3 (NBD) -- The State Administration of Taxation of China will start exchanging financial account information with taxation agencies of other countries or regions in September this year, according to the administration's promise made at the G20 Finance Ministers and Central Bank Governors Meeting in September 2014.

This means the Chinese tax authorities will get to know taxpayers' overseas revenue. For taxpayers classified into the high risk group, the tax authorities could conduct targeted tax inspections and take management measures subsequently. 

Other countries and regions, including Singapore, Bahamas, and Bahrain, will also start the exchange of information this month. 

Offshore tax evasion has always been a headache for tax agencies of all countries and regions around the world. Some large multinationals were reported to have leveraged the difference in tax laws of different countries to evade taxes by the means of related transactions and profit transfer.

Previous reports say Google uses two structures, known as a "Double Irish" and a "Dutch Sandwich", to shield the majority of its international profits from taxation. The setup involves shifting ad revenue generated in regions outside the U.S. from one Irish subsidiary to a Dutch company with no employees, and then on to a Bermuda mailbox owned by another Ireland-registered company. 

In July 2014, the Organisation for Economic Co-operation and Development released the Standard for Automatic Exchange of Financial Account Information in Tax Matters, in a bid to help countries and regions around the world foster greater tax cooperation and address the issues of international tax avoidance and evasion.

As of August 7, 2018, 103 countries and regions have entered into the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information. Of them, some conducted the first information exchange in September 2017, including Bermuda, British Virgin Islands, Cayman Islands, and Luxembourg, which are universally considered as tax havens. 

To comply with the Standard, China has made a lot of preparations. The most important one is the release of the Administrative Measures for Due Diligence of Tax-related Information in Non-resident Financial Accounts in May last year. 

In accordance with the regulation, China's financial institutions completed due diligence on pre-existing individual high-net-worth financial accounts (with an aggregate balance exceeding 1 million U.S. dollars as of June 30, 2017) by December 31, 2017, and submitted required financial account information to the Chinese authorities. 

By December 31, 2018, the financial institutions need to finish due diligence on pre-existing individual low-net-worth financial accounts (opened before July 1, 2017 and have an aggregate balance of no more than 1 million U.S. dollars as of June 30, 2017) as well as other pre-existing entity financial accounts (opened before July 1, 2017 and have an aggregate balance exceeding 250,000 U.S. dollars as of June 30, 2017). 

It is believed that with the implementation of the exchange of financial account information in tax matters, tax havens will no longer exist, and taxpayers' information such as overseas houses or insurance purchases and asset or profit transfer will become transparent.  

Email: lansuying@nbd.com.cn