On January 01, 2017, China Mainland and Hong Kong will adopt Common Reporting Standards (CRS) –– a new method used by governments around the world to create transparency on cross-border information. CRS was introduced by the Organization for Economic Co-Operation and Development in 2014 as part of the standard for Automatic Exchange of Financial Account Information.
Once China implements CRS, Chinese banks will be required to collect additional information from current and new customers, including foreign bank accounts and the following assets:
- Depository Accounts
- Custodial Accounts
- Special insurance contracts,
- Annuity contracts,
- Interest in shares of financial institutions
China’s CRS adoption is a clear sign of the country’s consent to participate in combating international tax evasion and global tax compliance.
To date, more than 100 jurisdictions have adopted or committed to implement CRS; however, the United States is the only major economy to refuse it in favor of its own standard, the Foreign Accounts Tax Compliance Act.
After two years of negotiations, the SAT and the IRS have announced a new transfer pricing methodology intended to expedite open Advanced Pricing Agreement (“APA”) applications for maquiladora operations.
In an attempt to apply fair tax methodologies and avoid double taxation for US companies with subsidiaries located in Mexico operating under the maquiladora structure, the SAT and IRS have announced a new transfer pricing methodology for pending APA agreements. The new methodology is expected to expedite the resolution of more than 700 pending APA requests.
The SAT will provide qualifying taxpayers with pending unilateral APA requests the option to apply a specific transfer pricing framework. Under the joint agreement, both the IRS and SAT will accept the results of the new methodology. This will provide transfer price certainty to taxpayers on the computation of income tax and reduce the risk of double taxation.
The SAT is in the process of establishing the general rules and procedures related to this new methodology. We expect that the SAT will contact all qualifying Mexican taxpayers which have pending APA applications that may qualify for the election with more details. Further guidance is expected in the next 4–6 weeks.
Companies that are contemplating an APA application or have a pending APA application should contact the Plante Moran international consulting team for additional details. Please don’t hesitate to contact us if you have any questions or concerns.