1. Executive Summary

The global financial landscape is rapidly moving towards unprecedented transparency, primarily driven by the Common Reporting Standard (“CRS”), an initiative by the Organisation for Economic Co-operation and Development (“OECD”). CRS aims to enhance international tax transparency and combat cross-border tax evasion through the automatic exchange of financial account information between participating jurisdictions.

The scope of CRS is continuously expanding to include new financial instruments, such as specific electronic money products, central bank digital currencies (“CBDCs”), and indirect investments in crypto-assets. Tax authorities, particularly in jurisdictions like China, are increasingly sophisticated in their enforcement, leveraging CRS data, inter-departmental cooperation, and advanced analytics to identify non-compliance across a broader range of taxpayers.

For our clients, it is crucial to accurately understand and declare their tax residency status and ensure meticulous compliance with reporting obligations across all relevant jurisdictions. We strongly advise proactively reviewing all financial structures and asset holdings, both domestic and international, to ensure full alignment with current CRS requirements. Accurate and complete self-certification forms submitted to financial institutions are paramount. Seeking timely and expert professional guidance from tax advisors is indispensable for navigating these complexities and mitigating risks.

2. Introduction to the Common Reporting Standard

What is CRS? A Foundation of Global Tax Transparency

The CRS is an internationally agreed-upon standard for the Automatic Exchange of financial account Information (AEOI) in tax matters. Developed by the OECD, its core objective is to enhance global tax transparency and combat cross-border tax evasion. This standard requires financial institutions in participating jurisdictions to collect financial account information and automatically exchange it with other participating jurisdictions annually.

The OECD has been instrumental in dismantling bank secrecy, with CRS being a significant achievement. In 2022 alone, information on 123 million bank accounts, valued at EUR 12 trillion, was exchanged. Under AEOI, national tax authorities collect predefined financial account information from their financial institutions and automatically exchange it with the account holder's country of residence.

Evolution and Expanding Scope of CRS: Adapting to Modern Finance

CRS is a dynamic standard that continually adapts to new financial products and technologies. Recent updates explicitly expand its scope to include specific electronic money products, central bank digital currencies (CBDCs), and indirect investments in crypto-assets held through derivatives and investment vehicles. This proactive inclusion demonstrates a clear intent to capture the rapidly growing digital financial landscape, ensuring that perceived obscurity of new financial products does not lead to non-compliance.

3. Key Information Exchanged Under CRS

Financial institutions in all participating jurisdictions are legally mandated to collect and report a specific set of information concerning their account holders' tax residency status and detailed account information.

For individual account holders, reported information typically includes:

• Name, residential address, date and place of birth.
• Taxpayer Identification Number(s) (TIN) and jurisdiction(s) of tax residency.
• Account numbers, account balance or value (typically year-end), and account closure information.
• Name of the Reporting Financial Institution.
• Gross amounts of interest, dividends, other income, and gross proceeds from asset sales within the account.

For corporate or other entity clients, and for individuals who exert control over certain entities, the reported data includes:

• For Entity Customers: Name, address, TIN, account number, account balance/value, income (interest, dividends, other), and gross proceeds from asset sales.
• For Controlling Persons: For entities identified as Passive Non-Financial Entities (NFEs), information on their Controlling Persons is also reported. This includes their name, address, date and place of birth, TIN, and the type of Controlling Person (e.g., beneficial owner).

This detailed data exchange allows tax authorities to construct comprehensive financial profiles, making it significantly harder to conceal financial activities.

Understanding Entity Classification: Active vs. Passive NFEs

The classification of an entity as an Active or Passive Non-Financial Entity (NFE) is crucial. An NFE is an entity that is not a financial institution. An entity is a 'passive NFE' if it fails to meet specific criteria, such as being listed on a stock exchange, being owned by a central bank/government, generating less than 50% passive income, or being a Charity Foundation. Authorities meticulously review each case, as the passive status dictates whether information on its controlling persons must be reported. This requirement aims to pierce through complex corporate structures to identify ultimate individual beneficial owners.

4. CRS Implementation and Impact in Key Jurisdictions

4.1. The UAE's Commitment to CRS: A Transparent Financial Hub

The United Arab Emirates (UAE) has demonstrated a strong commitment to CRS, officially joining the automatic exchange of financial account information starting January 1, 2018. The UAE solidified this by signing the Convention on Mutual Administrative Assistance in Tax Matters (MAC) and the Multilateral Competent Authority Agreement (MCAA) in April 2017.

UAE Reporting Financial Institutions (RFIs), including all banks, are mandated to determine if an individual or business is a "tax resident" in any country other than the UAE. The first reporting deadline was June 30, 2018, with annual reporting thereafter. Account holders must complete CRS Self-Certification forms to declare their tax residency status and notify their bank of any changes. Failure to comply may lead to account refusal or reporting based on available information. This shifts the burden of accurate tax residency proof largely to the account holder.

The UAE Ministry of Finance actively exchanges CRS data with numerous "peer jurisdictions". China is explicitly listed as a participating jurisdiction with an activated CRS exchange relationship with the UAE for the 2025 reporting period. This robust commitment dispels any previous perceptions of the UAE as a "tax haven," requiring stringent international tax compliance from individuals and entities utilizing the region.

4.2. China's CRS Implementation and Enforcement: A Proactive Stance

China has firmly established itself as a committed participant in the global movement toward tax transparency through its implementation of the OECD’s Common Reporting Standard (CRS). Since its formal adoption on July 1, 2017, China has built a comprehensive regulatory and operational framework to support the automatic exchange of financial account information.

The cornerstone of this framework is Announcement No. 14 (2017), jointly issued by the State Administration of Taxation (SAT) and the Ministry of Finance (MOF). This regulation, titled “Due Diligence Procedures on Financial Account Information in Tax Matters for Nonresidents”, outlines the responsibilities of financial institutions in identifying and reporting accounts held by non-residents. It integrates anti-money laundering (AML) protocols and aligns reporting thresholds with OECD standards by using U.S. dollar benchmarks.

By 2025, China’s CRS network spans over 106 jurisdictions, including Hong Kong, facilitating the exchange of detailed financial data such as account balances, interest, and dividends. China is also a signatory to the Multilateral Competent Authority Agreement (MCAA), reinforcing its commitment to international cooperation in tax matters.

The scope of reporting entities under China’s CRS regime is broad, encompassing:

·  Commercial and policy banks

·  Securities and futures firms

·  Insurance companies offering cash-value products

· Trust companies and private equity managers

· Informal investment vehicles and foreign bank branches operating in China

Importantly, while domestic branches of foreign banks are subject to Chinese CRS rules, offshore branches of Chinese institutions follow the CRS regulations of their host jurisdictions.

As of 2025, China continues to align its practices with the OECD’s updated CRS framework, which now includes provisions for digital financial products and crypto assets. Regulatory authorities have increased scrutiny of compliance, particularly in areas involving complex cross-border structures and digital asset holdings. Although no landmark judicial rulings have emerged to redefine CRS obligations, enforcement trends suggest a more assertive regulatory posture.

In this evolving landscape, financial institutions and individual account holders must remain vigilant. Full transparency, accurate reporting, and proactive compliance are no longer optional; they are essential. The global shift toward tax transparency is irreversible, and China is not only participating but actively shaping its way.

Recent Trends in Data Analysis and Enforcement: Broadening the Net

The State Taxation Administration (STA) of China focuses on tax evasion by high-net-worth individuals, monitoring significant fund movements and identifying tax risks. A recent trend shows an expansion of audit targets beyond high-net-worth individuals to include the middle-class, with tax recovery amounts as low as 127,200 yuan. Coordinated audits by tax authorities in regions like Hubei, Shandong, Shanghai, and Zhejiang signal higher-level unified directives, moving from 'voluntary declarations' to strict, substantive audits.

Chinese tax authorities employ multiple means to obtain information beyond CRS:

• Market-level reporting: Brokers in mainstream securities markets (e.g., Hong Kong, US) report trading information to mainland authorities.
• Inter-departmental cooperation: Collaboration among various government departments (STA, financial regulators, customs, foreign exchange) consolidates payment, labor, entry/exit, and foreign payment data to assess tax risks.
• Monitoring Crypto-related Activities: While CRS applies to crypto fund flows, authorities can detect violations by examining travel patterns, blockchain industry engagement, and high-value assets without clear fiat dynamics. Future closer relationships with crypto exchanges are possible.

5. Understanding Your Obligations: Impact on Clients

The Paramount Importance of Tax Residency Determination

Tax residency, not nationality or citizenship, is the fundamental determinant of CRS reporting obligations. Financial institutions are legally mandated to ascertain this status. Changing citizenship or obtaining permanent residence in another country generally will not exempt a Chinese tax resident from information exchange with China, as the legal definition of "tax resident" is often broader than nationality or immigration laws. Misunderstanding one's true tax residency can lead to incorrect self-certification and unwanted tax scrutiny.

Mandatory Self-Certification Requirements and Due Diligence

Financial stakeholders are universally required to complete CRS Self-Certification forms, which are critical legal declarations. For pre-existing accounts, financial institutions conduct rigorous due diligence, reviewing records and relying on client self-certifications. Non-compliance or inaccurate self-certification can lead to account refusal or reporting based on potentially incomplete or adverse information, shifting the burden of accurate disclosure to the taxpayer.

Potential Triggers for Scrutiny from Tax Authorities

Specific situations likely to attract heightened scrutiny from tax authorities, particularly in China, include:

• Non-resident accounts opened in China.
• Passive Non-Financial Entities (NFEs) with non-resident controllers.
• Chinese tax residents with overseas investments, cash-value insurance, or offshore company arrangements.
• Undeclared overseas assets and income.
• High-net-worth taxpayers, a primary focus for risk management.
• Discrepancies in self-certification or financial records.
• Significant fund movements or high-value assets without clear fiat account dynamics, especially involving digital assets.

Conclusion

The implementation of the CRS represents a pivotal advancement in the global pursuit of tax transparency. With its expansive scope and detailed exchange of financial account information, CRS has significantly reshaped the compliance landscape for individuals and entities engaged in cross-border financial activities.

Jurisdictions such as the United Arab Emirates and the People's Republic of China have demonstrated strong commitments to the CRS framework, aligning domestic regulations with OECD standards and actively participating in the AEOI. These efforts underscore a collective global movement toward greater fiscal accountability and cooperation.

As the regulatory environment continues to evolve, it is imperative for financial stakeholders, whether institutions or individual account holders, to remain proactive. This entails conducting thorough reviews of financial affairs, ensuring full and accurate disclosure of assets and income, and seeking professional guidance to navigate complex compliance requirements.

The journey toward comprehensive tax transparency is ongoing and irreversible. Sustained vigilance, adaptability to regulatory changes, and informed decision-making will be essential for maintaining compliance and fostering trust in the international financial system.