Hong Kong Underpins its Commitment to Improve CRS Tax Transparency

Interested in Understanding Dion?s Approach to Support (Mandatory Provident Fund) MPF & Occupational Ret irement Schemes Ordinance (ORSO) and Credit Unions to Meet their CRS Due Diligence and Report ing Obligat ions for 2020, and Beyond?

CRS Due Diligence and Report ing Obligat ions for

2020 & Beyond?

Contents

1. Abstract

2. Introduct ion

3. Requirements established in 2019 and beyond by ?2020-covered

inst itut ions??

4. List of reportable jurisdict ions

5. How Dion?s TRAC Solut ion can help you to be CRS compliant?

5.1. TRAC End-to-End Solut ion

5.2. TRAC Report ing Only Solut ion

5.3. TRAC Report ing Services based on AWS Cloud Platform

6. Take-aways

1. Abstract

The Inland Revenue Department of Hong Kong (IDR) gazetted Inland Revenue (Amendment) (No. 2) Ordinance 2019 (Amendment Ordinance). Under the Amendment Ordinance Mandatory Provident Fund Schemes, Occupational Ret irement Schemes and Credit Unions are mandated to establish CRS due diligence procedures by not later than 31 December 2019 to ident ify offshore account holder tax resident in a CRS reportable jurisdict ion, with the first report ing deadline of 31 May 2021.

The t imeline puts a lot of pressure on such financial service providers during the year 2019 to establish relevant procedures to meet the 31 December 2019. The paper provides a high-level overview about the key tasks which needs to achieve and illustrates how Dion?s TRAC (Tax Report ing and Compliance) Solut ion can help you to ensure CRS compliant procedures by 31 December 2019.

2. Int roduct ion

Globalisat ion of the financial sector now makes it much easier for individuals and ent it ies to hold money and assets outside of their jurisdict ion of tax residence. While the

great majority comply with their tax obligat ions there are some who will use the availability of offshore financial structures to evade tax. CRS is about improving transparency in the fight against tax evasion

and in so doing protect ing the integrity of the tax systems of the part icipat ing jurisdict ions.

Hong Kong as a responsible member of the internat ional community and a leading

financial center has implemented the CRS standards and commenced the first information exchanges based on the standards by 2018.

On 01 March 2019 The Inland Revenue

Department of Hong Kong announced that the Inland Revenue (Amendment) (No. 2) Ordinance 2019 (Amendment Ordinance) was gazetted. This follows the passage of the Inland Revenue (Amendment) (No. 7) Bill 2018

that passed the Legislat ive Council on 20 February 2019.

The Amendment Ordinance classifies:

- Mandatory Provident Fund Schemes

- Occupational Ret irement Schemes

- Pooling Agreements

- Approved Pooled Investment Funds

- Credit Unions

as 2020-covered Inst itut ions, which are required to establish CRS due diligence

procedures by 31 December 2019 and to provide a first CRS fiscal report by not later than 31 May 2021.

2019 2020 2021 2022

Establish CRS due diligence procedures for new

individual & legal entity accounts

Prepare CRS

Reporting

Establish CRS due procedures for pre-existing

individual & legal entity accounts

Execute due diligence on pre-existing

high-value individual accounts

Execute due diligence on pre-existing lower-value individual accounts

Establish CRS Reporting Procedures

Enhanced due diligence on certainPre-existing

high-value accounts

Due diligence on new

individual and legal entity accounts

31.12.2019CRS readiness

Due diligence on new

individual and legal entity accounts

31.05.2021First reporting

Due diligence on pre-existing legal entity accounts exceeding

the threshold of USD 250K on 31 Dec 19

Due diligence on Pre-existing legal entity accounts exceeding the threshold

of USD 250K on 31 Dec. 2020

Prepare CRS

Reporting

31.05.2022First full reporting

Enhanced due diligence on certainPre-existing

high-value accounts

Due diligence on new

individual and legal entity accounts

Due diligence on Pre-existing legal entity accounts exceeding the threshold of

USD 250K on 31 Dec. 2020

4. List of Reportable

Jurisdict ions

With the Amendment Ordinance the number of reportable jurisdict ions is increased from 75 for report ing year 2018 and 2019 to 126 reportable jurisdict ions in 2021 (for report ing year 2020).

2020-covered Inst itut ions are required to report tax resident in the above listed jurisdict ions:

Albania, Andorra, Anguilla, Ant igua & Barbuda, Argent ina, Armenia, Aruba, Australia, Austria, Azerbaijan, Bahamas, Bahrain, Belgium, Bermuda, Brazil, Brit ish Virgin Islands, Brunei Darussalam, Bulgaria, Burkina Faso, Cameroon, Canada, Cayman Islands, Chile, China, Colombia, Cook Islands, Costa Rica, Croat ia, Curacao, Cyprus, Czech Republic, Denmark, Dominica, Dominican Republic, Estonia, El Salvador, Faroes, Finland, France, Gabonese Republic, Germany, Georgia, Ghana, Gibraltar, Greenland, Grenada, Guatemala, Guernsey, Hellenic Republic (Greece), Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Italy, Jamaica, Japan, Jersey, Kazakhstan, Kenya, Korea, Kuwait , Latvia, Lebanon, Liberia, Liechtenstein, Lithuania, Luxembourg, Macao, Macedonia, Malaysia, Maldives, Malta, Marshall Islands, Maurit ius, Mexico, Moldova, Monaco, Montserrat, Morocco, Nauru, Netherlands, New Zealand, Norway, Nigeria, Niue, Pakistan, Panama, Paraguay, Peru, Philippines, Poland, Portugal, Qatar, Romania, Russian Federat ion, Saint Kit ts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa, San Marino, Saudi Arabia, Senegal, Seychelles, Singapore, Sint Maarten, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Trinidad and Tobago, Tunisia, Turkey, Turks and Caicos Islands, Uganda, Ukraine, United Arab Emirates, United Kingdom, Uruguay, Vanuatu.

TRAC-CRS Front End

TRAC-CRS Backend

TRAC-CRS Front End

Temp

Report Scheme Validation

Reporting Cases

Display Static &

Account Data

Modify Static &

Account Data

Display Fiscal Report Data

Modify Fiscal Report Data

Generate & Transmit

Fiscal Report

Pass

Upload Customers Account & Financial

Informa�on

Client Account, Financial Data Storage (Classified by Source)

Report StorageTRAC Storage

Report DataCollection Fiscal Report

Storage

No�fica�on

Report Data Collec�on

CRS & FATCARepor�ng XML

Financial Data

RFI Source Systems

AccountData

Client Data

XMLFile Temp

Data ValidationIngestion

Cases

AutomatedData Ingestion

FailRemediate

Cases

Remediate

Cases

The system will be integrated into your system and the relevant data will be ingested into TRAC based on an XML Ingest ion API. The CRS due diligence procedures evaluate based on indicia the tax residency status of each account holder and finally classifies them as CRS reportable to each reportable jurisdict ion ident ified. For customers which could not classified unequivocally, e.g. documentary evidence was not provided, a case will be generated and assigned to either a group

of employers or an individual employer to re mediate the case.

TRAC comes with an immutable Audit t rail funct ionality. The audit t rail logs each act ion taken to classify an account in accordance to the CRS guidelines. TRAC supports the generat ion and transmission of CRS fiscal reports to the Internal Revenue Department. The Fiscal Report generat ion follows a sophist icated lifecycle based on 4-eyes-principles. The details of the

generated fiscal report can be retrieved, so that addit ional checks are possible prior to the transmission.

5.2. TRAC Report ing Only Solut ion

TRAC operated as report ing only solut ion, supports your CRS and FATCA fiscal report ing obligat ions.

This operat ing model needs to be implemented in the IT Landscape. To perform the fiscal report ing it is required to ingest CRS pre-classified data.

The report generat ion and transmission follow the same procedures as in the End-to-End Solut ion.

5.3. TRAC Report ing Services based on AWS Cloud Plat form

For the report ing session 2019 and onwards, Dion Global Solut ion offers CRS & FATCA fiscal report ing services based on AWS Cloud Platform Services. Instead integrat ing TRAC into your IT Landscape, the report ing information will be provided based on a pre-formatted Excel file. The file will be ingested automatically into TRAC and will executed in the ident ical way as the XML import.

The solut ion is a cost efficient and sustainable alternat ive for inst itut ions, with only a limited number of reportable accounts.

6. Take-awaysIt is Dion?s understanding that there is a t ide t imeline to implement CRS due

diligence and report ing procedures.

Small and midsize inst itut ions might face issues triggered by the small number of available resources to monitor the constant changes affect ing the CRS due diligence and report ing schemes.

Dion Global Solut ion with his team of CRS experts monitors the changes on legal requirements and provide on-t ime release updates to ensure that our Clients are always CRS compliant.