CRS Reporting vs. Tax Liability: China's New Offshore Trust Rules

When analysing offshore trusts, one of the most important distinctions is between information reporting and tax liability.

These are related, but they are not the same legal question.

Understanding the distinction also tells us where to look when something appears not to be working.

1. CRS Is About Information Reporting

The Common Reporting Standard, or CRS, is an international framework for the automatic exchange of financial-account information.

If a structure is not being reported as expected, the first questions are therefore about CRS classification and reporting:

• Is the entity a Financial Institution?
• Is the account a reportable financial account?
• Who is the reportable person or controlling person?
• Is the relevant jurisdiction participating in the applicable exchange relationship?
• Has the reporting institution correctly applied the CRS due-diligence rules?

These are CRS questions.

They do not, by themselves, determine whether tax is owed.

2. Tax Liability Is a Domestic-Law Question

The next question is completely different:

Does the taxpayer owe tax on the underlying income or assets?

That question is determined by the applicable domestic tax legislation and, where relevant, tax treaties.

For a Chinese tax-resident settlor, for example, China's domestic individual income-tax rules determine whether relevant offshore-trust income is taxable and how it must be reported.

China's 2026 offshore-trust rules provide specific tax treatment for relevant contributions, annual trust income, and termination events. (fgk.chinatax.gov.cn)

The tax authority's ability to receive information through CRS and its legal authority to impose tax are therefore separate issues.

3. A Structure Can Be Reported Correctly and Still Have Unpaid Tax

Imagine an offshore trust account is correctly classified and reported under CRS.

The information may reach the relevant tax authority, including information concerning the account balance and relevant financial income.

But the taxpayer may still fail to report taxable income under their domestic tax law.

That would not necessarily indicate a CRS failure.

The CRS reporting obligation could have been fulfilled while the taxpayer's domestic tax obligation remained outstanding.

4. The Reverse Is Also True

The opposite situation is equally important.

A taxpayer may have a domestic tax liability even where there is no CRS report concerning a particular structure.

That could happen for various reasons, including:

• The entity is not a CRS Financial Institution;
• The account is not a reportable account;
• The relevant person is not reportable under the applicable CRS rules;
• The jurisdictional exchange conditions are not satisfied; or
• Another reporting mechanism applies instead.

None of those conclusions automatically means that the underlying income is tax-free.

No CRS report does not equal no tax liability.

5. “Not on a Register” Does Not Mean “Not Taxable”

This is one of the most common conceptual mistakes.

A trust may not appear on a particular public or regulatory register while the settlor or beneficiary still has a domestic tax obligation.

Tax legislation generally determines liability based on concepts such as:

• Residence;
• Source;
• Ownership;
• Beneficial entitlement;
• Attribution rules;
• Control;
• Income character; and
• Specific anti-avoidance or trust provisi