On Sept. 1, the Chinese regime shared tax-related information with authorities in 83 countries that operate under the Common Reporting Standards (CRS) as set forth by the Organization for Economic Co-operation and Development (OECD).
By deciding to operate under the CRS, Beijing will come into greater cooperation with countries that wealthy Chinese often use to conceal their riches — among them the Virgin Islands, Bermuda, Luxembourg, Switzerland, and the Bahamas.
At the end of August, China confirmed that 83 countries would agree to share information about financial accounts. The Chinese tax authorities will receive most of the information from 2018. Some countries agreed to share their data from 2017 and 2019.
CRS is a standard designed based on the U.S. Foreign Account Tax Compliance Act (FATCA). The United States didn’t sign the agreement, but uses FATCA to share information with other countries. According to U.S. Department of the Treasury, 113 countries have signed the FATCA agreement.
By sharing more tax information with these and other countries, the Chinese regime will be able to collect more income tax from more people and investigate various types of foreign investment.
On Aug. 31, the National People’s Congress approved a new Individual Income Tax Law that counts all overseas earnings as taxable income. The law will take effect Jan. 1, 2019.
The 21st Century Business Herald gave an example to explain the change clearly. A hypothetical individual who holds French citizenship but lives in China more than 183 days per year is considered a Chinese taxpayer under the new law.
Supposing the person operates businesses in China and in other countries, the new law requires him or her to pay taxes on foreign income as well as income accrued in China, including 25 percent in corporate taxes.
For the last two decades, over China has lost $1 trillion in funds spirited out of China by wealthy individuals, especially those with powerful connections in the Chinese Communist Party (CCP). With Beijing’s information sharing spread around the world, it will be more difficult for them to hide their income abroad.
According to an analysis by Kankan News, the Chinese regime’s actions affect six groups of people, including overseas Chinese, Chinese taxpayers who own foreign assets, those overseas family trusts, those who engage in international trade, those who conduct overseas investments via shell companies, and those who have foreign insurance.
An article by Yetan Finance says that the CCP will using its information sharing to target three types of overseas investments popular among Chinese.
One type is insurance purchased by Chinese in Hong Kong, where insurance claims are tax-free. According to the Hong Kong Insurance Regulatory Commission, the newly increased insurance by Mainland Chinese in 2016 doubled from the previous year, exceeding 70 billion Hong Kong dollars ($10.24 billion).
Many Chinese relocate their assets to New Zealand and Australia, which are two of the most popular destinations for Chinese immigration and investment.
The third form of investment is carried out via overseas trusts and shell companies set up by overseas Chinese.