『The Polar Bear Trust and China's New Offshore Trust Tax Rules』のカバーアート

The Polar Bear Trust and China's New Offshore Trust Tax Rules

The Polar Bear Trust and China's New Offshore Trust Tax Rules

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 The Polar Bear Trust and China's New Offshore Trust Tax RulesThe important point in comparing the Polar Bear Trust structure with China’s new offshore trust tax rules is that these are two different questions.One concerns how a trust is classified and reported under CRS.The other concerns whether the person behind the trust owes tax under their domestic tax law.Those questions should not be confused.1. What the Polar Bear structure is addressingThe Polar Bear Trust discussion is fundamentally a CRS classification issue.The structure is described as seeking to have the trust fall within the CRS framework as a Financial Institution — potentially through the relevant Custodial Institution or Investment Entity rules — rather than treating the trust simply as an arrangement requiring the same look-through analysis that would apply in another classification.The CRS contains detailed definitions for Financial Institutions, Custodial Institutions, Investment Entities and Controlling Persons, together with specific commentary explaining how those rules operate. The OECD commentary also makes clear that trusts can fall into different CRS classifications depending on their structure and activities.So the question is:Who is responsible for reporting what, and under which CRS classification?That is a reporting question.2. What CRS does not decideCRS does not determine whether the settlor, beneficiary or other person owes income tax.Automatic exchange of information is designed to give tax administrations information about financial accounts and relevant persons. It does not replace the domestic tax rules that determine whether income, gains or transfers are taxable.That distinction becomes critical with China’s 2026 offshore trust rules.3. China has now addressed the domestic tax questionOn 24 July 2026, China's Ministry of Finance and State Taxation Administration issued Announcement No. 21 of 2026 concerning individual income tax on offshore trusts. The rules address taxation at different stages of an offshore trust, including contribution, ongoing income and termination.For a Chinese resident individual contributing property to an offshore trust, the rules provide that the taxable income is generally calculated by reference to the market value of the property at the time of contribution, less its original value and reasonable expenses, and is treated as property-transfer income. The official explanation states that the applicable rate for this category is 20%.That means the CRS classification of the trust does not, by itself, eliminate the underlying Chinese tax analysis.4. The trust can also have tax consequences while it existsThe new rules go beyond the initial contribution.For an offshore trust funded by a Chinese resident individual, income generated during the trust's existence can be attributed to that resident individual for Chinese individual income-tax purposes, depending on the nature of the income.Importantly, the official rules state that this can apply whether or not the income has actually been distributed.So:CRS reporting outcome ≠ Chinese tax outcome.A trust may have one classification for information-reporting purposes while the individual behind it has a separate tax liability under Chinese domestic law.5. What happens when the trust terminates?The distinction continues at termination.For a resident individual who contributed property to the offshore trust, China’s rules provide for taxation of the trust's liquidation gains at termination, with the relevant amount calculated using the market value of the trust property at termination, less the applicable original value and reasonable expenses. The official explanation states that this is taxed as interest, dividend and bonus income at 20%.The rules also contain specific provisions for situations involving a resident individual becoming non-resident and for offshore trusts established by non-residents where residents ultimately receive or control the relevant income or property.6. Why the China parallel mattersThis is precisely why the China example is useful.Suppose a structure produces a particular CRS classification.That may answer:“How does the financial institution report the account under CRS?”It does not automatically answer:“Does the Chinese resident owe individual income tax?”The second question has to be answered under Chinese domestic tax law.China's new rules make that separation particularly clear because they expressly address offshore trust contributions, income during the trust's life, distributions and termination.7. A useful way to think about itQuestionRelevant frameworkIs the trust a Financial Institution?CRS classification rulesIs an account reportable?CRS due-diligence and reporting rulesWho may need to be identified?CRS Controlling Person / Account Holder rulesWhich jurisdiction receives exchanged information?CRS exchange mechanicsDoes the Chinese resident owe tax?Chinese domestic tax lawWhen does the ...
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