Common AEOI Issues

1.

Non-reporting of Taxpayer Identification Number (TIN) and Date of Birth (DOB)

Some financial institutions might misunderstand that TIN and DOB in respect of the account holders and controlling persons of pre-existing accounts are optional for reporting.

Financial institutions are required to report the information so long as they possess the relevant records of TIN (together with the issuing country) and DOB of the account holders and controlling persons.  If the financial institutions do not keep the TIN and DOB in respect of pre-existing accounts, they are required to use reasonable efforts to obtain such information by the end of the second calendar year following the year in which such accounts were identified as reportable accounts.

2.

Incorrect TIN

Some financial institutions reported TINs with incorrect structure or invalid value which affected the accuracy of the information exchanged.

If financial institutions do not have the TIN of the account holder or controlling person in the records, they should leave the “TIN” data field blank when reporting and should not input other values (e.g. NIL, 0, A, B, C) in the “TIN” data field.

Each jurisdiction has its own rules governing the issuance, structure, use and validity of TINs or their functional equivalents for individuals and entities.  To enhance the quality of the information collected and minimize the administrative burden associated with any follow up concerning reporting of an incorrect TIN, financial institutions should check the information for TINs of tax residents of different jurisdictions published on the Automatic Exchange Portal developed by the Organisation for Economic Co-operation and Development: https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-identification-numbers/.

3.

Misunderstanding on the meaning of undocumented account

Some financial institutions might misunderstand that undocumented accounts are pre-existing individual accounts without self-certification forms in support.

An undocumented account is where the reporting financial institution maintains a pre-existing individual account for which only a “hold-mail” instruction or “in-care-of” address in a reportable jurisdiction is discovered and no other indicia is identified for the account holder in the electronic record search, paper record search and relationship manager inquiry (in the case of pre-existing high value individual account), and the financial institution is also unable to obtain a self-certification or documentary evidence from the account holder to establish the account holder’s residence(s).

4.

Misunderstanding on the change-in-circumstances and the follow-up procedures

Some financial institutions might have a misperception that the change in circumstances only refers to the change of information of the account holder.

In fact, a change of circumstance is only relevant if the new information affects the status of the account holder for the AEOI purposes, whether that is based on the due diligence procedures or from a self-certification.  For example, if a new address in the same identified jurisdiction is provided by the individual account holder, reportable status of the account holder established earlier would not be affected and the financial institution should take no further action.  However, if a new address in different jurisdiction is reported by the account holder, it is evident that there has been a change of circumstance affecting the reportable status of the account holder.  The financial institution has to follow the due diligence procedures in relation to the change of circumstances.

Some financial institutions might overlook to report the original identified jurisdiction of the account holder if the change in circumstances does not cure the original identified jurisdiction.  Once a change of circumstance has been identified, the financial institution must request a self-certification and new documentary evidence from the account holder to establish whether the account holder is a reportable person and, if so, to which jurisdiction the reportable information should be sent.  If the account holder fails to respond to the request within 90 days following the notice or discovery of the change of circumstances, the financial institution should treat the account holder as reportable to each jurisdiction for which it holds indicia.

5.

Incorrect classification of entity holder type

Some reporting financial institutions might be confused of the entity holder type when preparing the data file.

Financial institutions may find out more information about the type of entity account holder and controlling person at paragraphs 2.2.3 and 2.2.4 of Financial Account Information Return XML Schema and User Guide respectively.  According to the Financial Account Information Return XML Schema, the available entity holder type are as follows:

Below are some illustrative examples for reference:

Example 1: The entity is a passive NFE and a tax resident of Hong Kong.  It has only one controlling person who is a tax resident of Country A (a reportable jurisdiction).

The entity is not a reportable person but the controlling person is a reportable person.  The entity holder type is CRS101.

Example 2: The entity is a passive NFE and a tax resident of Country B (a reportable jurisdiction).  It has only one controlling person who is a tax resident of Hong Kong.

The entity is a reportable person while the controlling person is not.  The entity holder type is CRS103.

Example 3: The entity is a passive NFE and has only one controlling person.  Both the entity and its controlling person are tax residents of Country C (a reportable jurisdiction).

Both the entity and its controlling person are reportable persons.  The financial institution can report the information with respect to the account with the entity holder type either (i) CRS101 only or (ii) CRS101 together with CRS103 (as if information are reported with respect to two accounts).

Example 4: The entity is a passive NFE and has only one controlling person.  The entity and its controlling person are tax resident of Country C (a reportable jurisdiction) and Country D (a reportable jurisdiction) respectively.

Both the entity and its controlling person are reportable persons.  The financial institution should report the information with entity type as CRS101 (for information with respect to the controlling person of the entity) and also report the information with entity type as CRS103 (for information with respect to the entity itself).

Example 5: The entity is an active NFE and a tax resident of Country A (a reportable jurisdiction).

The entity is a reportable person.  The entity holder type is CRS102.  There is no requirement to “look through” the active NFE to identify the controlling person.

6.

Misreporting due to human errors and computer system errors

Some financial institutions might omit some reportable accounts or wrongly report the financial information of the reportable accounts due to human errors or computer system errors.

Section 80B to 80F of the Inland Revenue Ordinance set out the levels of penalties of non-compliance, submission of incorrect returns and defrauding with intent.  The financial institutions should put in place reconciliation checks at the point of data extraction as well as prior to the actual reporting to ensure the completeness and accuracy of return filing.