Those who have been or is about to be involved in illegal activities, such as account opening for illegal money, money laundering or tax evasion in Tax Haven, will soon get into trouble as the CRS will be put into effect in China from Sep. and new anti-tax avoidance clauses were added into personal income tax last week, which may hit the act of off-shore tax evasion hard! Image | Google The First CRS Information Exchange in China You have probably heart about relevant introduction about CRS and we have introduced it before. © Image | Google It’s worth noting that information exchange will be based on the identity of tax resident instead of nationality when CRS takes effect in China. Example Mr. B is a French and has been living and working in China for a long time. In this case, he is considered a Chinese tax resident and his overseas accounts have to be exchanged to China tax bureau rather than France tax bureau. Once a large overseas amount is found, relevant person may pay a large amount of overdue personal tax bill and corporate income tax of 25% of overseas company. Anti-tax Avoidance Clauses Added Into Personal Income Tax For the First Time Recently, revised Personal Income Tax Law was ratified by NPC Standing Committee and is about to be put into effect from January 1 of next year, and anti-tax avoidance clauses are added for the first time. Tax authority has the right to adjust tax with reasonable methods when one of the following situations takes place: Business between individuals and related parties violates the Arm’s Length Principle and has no proper reasons Enterprises controlled by individual residents or by individual residents and resident enterprises jointly in countries (areas) with relative low actual tax burden has no necessary and reasonable operation, profit that belongs to individual residents will not be distributed or will be reduced. Individuals start business with unreasonable purposes to gain improper tax benefit. Tax authority makes adjustment to tax based on previous clauses, impose overdue tax and interest. Example Mr. C invests through overseas BVI(Tax Haven Virgin Islands) shell company. Under current tax law, BVI company can avoid individual A paying tax if the profit is not distributed to individual shareholders; however, in the case of anti-tax avoidance clauses, China tax authority can impose tax on BVI company with no business in the name of controlled relevant company. Individuals Added Into Anti-tax Avoidance System For a very long time, China income tax has been focusing on enterprises and related anti-tax avoidance measures have been aiming at legal representatives. But this anti-tax avoidance means relevant individuals’ tax avoidance behaviors are also added into anti-tax avoidance system. It was reported by overseas media that a month ago, commercial banks in New Zealand and Australia have blocked thousands of accounts and investigated if the account holders are foreign taxpayers or not, and most of them turned out to be Chinese residents. Image | nzherald.co.nz For those who want to buy foreign passports or establish off-shore companies to evade tax, hide illegal fortune or even participate in money laundering, CRS and new personal income tax put an end on their good days.