Encore Professional Services

Author: Dominik Stuiber

Is your PIC a CRS Reporting
Financial Institution (RFI) and what are your obligations?

Personal
Investment Companies (PICs) that fall within the definition of an Investment
Entity are reporting Financial Institutions (FIs) under the OECD’s Common
Reporting Standard (CRS). As such, these PICs are subject to the same reporting
standards that a bank or other financial institution is.

Background

With
the Inland Revenue (Amendment) (No. 3) Ordinance 2016 (IRO), which came
into effect on 30 June 2016, Hong Kong ratified the OECD’s initiative for
Automatic Exchange of Financial Account Information (AEOI) which consists
of the Common Reporting Standard (CRS) and Competent Authority Agreements
(CAA). The CRS sets out the reporting and information collection
obligation on financial accounts of reportable persons by FIs. A CAA
provides the legal basis and modality for the exchange of financial
account information between governments.

When is a PIC an Investment
Entity?

According
to the CRS definition, an entity is an investment entity if it is trading in
securities and other financial assets[i],
managing an individual portfolio, or otherwise invests or manages financial
assets and is discretionarily managed by another financial institution. A PIC
with a private banking account where the bank manages the investment portfolio
very likely fulfils the definition of an investment entity.

What are the obligations of a PIC?

The
IRO requires FIs to notify the Hong Kong Inland Revenue Department (IRD) if
they maintain a reportable account and file the Financial Account Information
Returns. This is facilitated through the AEOI Portal provided by the IRD. The
portal launched on 3rd July 2017 and FIs are required to register
within 3 months. A PIC being a reporting FI, therefore, will need to register
with the IRD before 3rd October 2017 to be compliant.

PICs
incorporated in an offshore jurisdiction should refer to the implementation
rules of CRS in the respective jurisdiction of incorporation. An added
difficulty can be the tax residency rules and different treatments depending on
the entity. In Belize, for example, International Business Companies (IBCs) are
not to be considered tax residents in Belize. The Seychelles deem all
companies, including IBCs, incorporated in the Seychelles as tax residents.

[i]
Including money market instruments (cheques, bills, certificates of deposit,
derivatives); foreign exchange; exchange, interest rate and index instruments;
transferable securities; or commodity futures.