Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (MCAA)

On October 29, 2014, the first group of countries signed the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (MCAA) during the 2014 Berlin Tax Forum. This marked a new chapter in the global effort to enhance financial transparency and combat tax evasion. While the MCAA itself may not be widely known, its implementation mechanism—the Common Reporting Standard (CRS)—is likely familiar to many.

CRS requires financial institutions to automatically share the financial account information of account holders annually with the tax authorities of the account holder’s country of tax residence, leaving no place for high-net-worth individuals to hide their overseas financial assets. However, CRS is merely the operational framework for information exchange. The legal foundation underpinning CRS is the MCAA.

As of May 16, 2023, 120 jurisdictions have implemented CRS. This means that financial accounts held by Chinese tax residents in financial institutions across these jurisdictions are automatically reported to the Chinese tax authorities each year. To fully understand CRS, one must first grasp the structure and provisions of the MCAA.

Structure of the MCAA

The MCAA is composed of eight chapters and six annexes, which include:

1. Chapter 1: Definitions
   • Provides definitions of terms used in the agreement.
2. Chapter 2: Exchange of Information on Reportable Accounts
   • Specifies the information to be exchanged automatically.
3. Chapter 3: Timing and Manner of Exchange of Information
   • Outlines the timeline and methods for information exchange.
4. Chapter 4: Cooperation on Compliance and Enforcement
   • Describes how parties will collaborate to ensure compliance with the agreement.
5. Chapter 5: Confidentiality and Data Safeguards
   • Establishes rules to ensure data confidentiality and protection.
6. Chapter 6: Consultations and Amendments
   • Details procedures for consultations and amendments to the agreement.
7. Chapter 7: Duration of the Agreement
   • Specifies the notifications required for the agreement to take effect and how it may be terminated.
8. Chapter 8: Coordinating Body Secretariat
   • Defines the role of the coordinating body secretariat.

Annexes:

• Annex I: List of jurisdictions adopting a non-reciprocal approach (jurisdictions that only provide information but do not receive it).
• Annex II: Methods for transmitting information.
• Annex III: Data protection measures and confidentiality safeguards.
• Annex IV: Confidentiality questionnaire to ensure participating countries meet required confidentiality and data protection standards.
• Annex V: List of competent authorities where the agreement is in force (e.g., China’s State Taxation Administration).
• Annex VI: Planned dates for exchanging information.

Chapter 2: Exchange of Information on Reportable Accounts

1. Responsibility for Information Exchange

According to Article 1.1 of Chapter 2 of the MCAA, once the agreement takes effect, each competent authority must annually and automatically exchange the information listed in Article 2 of Chapter 2 (detailed below) with other competent authorities.

Under Article 1.2, jurisdictions listed in Annex I (non-reciprocal jurisdictions) can only provide information but cannot receive it. Jurisdictions not listed in Annex I can receive the information specified in Article 2 but are not obligated to provide such information to jurisdictions in Annex I. Notably, China is not included in Annex I.

2. Account Holder Information

Under Article 2(a) of Chapter 2, the following basic information about account holders must be exchanged for reportable accounts:

• For individuals: Name, address, taxpayer identification number (TIN), date of birth, and place of birth.
• For entities: Name, address, and TIN. If the entity is identified as having one or more controlling persons who are reportable persons under CRS due diligence procedures, the entity must also report the controlling persons’ name, address, TIN, date of birth, and place of birth.

3. Bank Account Information

Under Article 2(b), the bank account number (or equivalent identifying information if no account number exists) must be reported.

4. Financial Institutions

Under Article 2(c), the name and identifying number (if any) of the reporting financial institution must be provided.

5. Account Balances

Under Article 2(d), the account balance or value at the end of the calendar year (or other appropriate reporting period) must be reported. For insurance or annuity contracts, this includes the cash value or surrender value. If the account was closed during the reporting period, the balance or value at the time of closure must be reported.

6. Custodial Accounts

Under Article 2(e), the total amount of interest, dividends, and other income generated from assets held in the account during the calendar year (or other reporting period) must be reported. Additionally, if the financial institution acted as a custodian, broker, nominee, or agent for the account holder, the gross proceeds from the sale or redemption of financial assets must also be reported.

7. Deposit Accounts

Under Article 2(f), the total amount of interest paid or credited to the deposit account during the reporting period must be reported.

8. Other Accounts

Under Article 2(g), for accounts not covered above, the total amount paid or credited to the account holder during the reporting period must be reported, including redemption payments.

Chapter 3: Timing and Manner of Exchange of Information

1. Legal Principles of Jurisdictions

Under Article 1 of Chapter 3, jurisdictions may determine the amounts and types of account transactions to be reported based on their domestic tax laws.

2. Currency Denomination

Under Article 2, the currency denomination of all reported amounts must be specified.

3. Timing of Exchange

Under Article 3, information specified in Chapter 2 must be exchanged within nine months of the end of the relevant calendar year, starting from the dates outlined in Annex VI. However, exchanges will only occur if the agreement is in effect for both competent authorities and if the reporting requirements align with CRS standards.

4. Exchange Format

Under Article 5, information must be exchanged in the CRS XML schema format.

5. Transmission and Encryption

Under Article 6, jurisdictions must agree on one or more methods for data transmission, including encryption standards, to maximize security while minimizing complexity and cost (see Annex II).

Chapter 4: Cooperation on Compliance and Enforcement

Chapter 4 requires that if a competent authority believes errors or non-compliance by financial institutions may result in incorrect or incomplete reporting, it must notify the other competent authority. The notified authority must take appropriate measures under its domestic laws to address the errors or non-compliance.

Chapter 5: Confidentiality and Data Safeguards

Chapter 5 mandates that all exchanged information must be kept confidential and protected under the laws of the providing jurisdiction and the safeguards outlined in Annex III. Any breaches of confidentiality must be reported to the Coordinating Body Secretariat, which will notify all affected parties.

Chapter 6: Consultations and Amendments

Chapter 6 allows competent authorities to request consultations to resolve difficulties in implementing or interpreting the agreement. Amendments to the agreement require written consensus and take effect one month after the last signature.

Chapter 7: Duration of the Agreement

The provisions of Chapter 7 of the MCAA include the following:

1. Legislative Basis

According to Article 1 of Chapter 7, the competent authority of a signatory jurisdiction must, at the time of signing the agreement or after enacting the necessary domestic legislation to implement the Common Reporting Standard (CRS), promptly notify the Coordinating Body Secretariat of the following:

• The existence of the necessary domestic laws to implement CRS, including the effective dates for distinguishing between pre-existing and new accounts, as well as applicable or completed reporting and due diligence procedures.
• Confirmation of whether the jurisdiction is listed in Annex I (jurisdictions adopting a non-reciprocal approach).
• Specification of one or more methods for transmitting data, including encryption methods (Annex II).
• Details of any personal data protection measures (if applicable) (Annex III).
• Assurance that sufficient measures are in place to meet confidentiality and data protection requirements, along with a completed confidentiality and data protection questionnaire (Annex IV).
• A list of all competent authorities with which the jurisdiction intends to implement the agreement after completing its domestic legal procedures (if applicable).

Competent authorities are required to immediately notify the Coordinating Body Secretariat of any subsequent changes to the above information.

2. Effective Date of the MCAA

Under Article 2.1 of Chapter 7, the MCAA will become effective between two competent authorities on the later of the following dates:

1. The date on which the later of the two competent authorities notifies the Coordinating Body Secretariat of the information listed in Article 1, including the other competent authority’s jurisdiction.
2. If applicable, the date on which the Convention on Mutual Administrative Assistance in Tax Matters becomes effective for both jurisdictions.

3. Publication of Competent Authorities

According to Article 2.2 of Chapter 7, the Coordinating Body Secretariat must maintain a list of competent authorities that have signed the agreement, as well as those for which the agreement has become mutually effective. This list must be published on the OECD website (Annex V).

4. Implementation Dates and Methods

Under Article 2.3 of Chapter 7, the Coordinating Body Secretariat must publish the information provided by competent authorities under Article 1, including the effective dates for reporting and due diligence procedures and whether the jurisdiction has adopted a non-reciprocal approach. Member jurisdictions may submit written requests to the Coordinating Body Secretariat to obtain information about other jurisdictions’ data transmission methods, personal data protection measures, and compliance with confidentiality and data protection standards.

5. Breaches of the Agreement

According to Article 3 of Chapter 7, if one competent authority determines that another competent authority has committed a serious breach of the agreement, it must notify the other authority in writing and suspend the exchange of information under the agreement. Such suspension takes immediate effect. Serious breaches may include, but are not limited to:

• Violations of the agreement or related confidentiality and data protection provisions.
• Failure to provide information required under the agreement in a timely or adequate manner.
• Impediments to CRS implementation due to definitions of institutional identity or non-reportable financial accounts.

6. Termination of the Agreement

Under Article 4 of Chapter 7, a competent authority may notify the Coordinating Body Secretariat in writing of its intention to terminate participation in the agreement or to terminate the agreement with respect to a specific competent authority. Such termination will take effect on the first day of the month following a 12-month period after the notice is given. In the event of termination, all information previously exchanged under the agreement must remain confidential and be subject to the relevant provisions.

Chapter 8: Coordinating Body Secretariat

According to Chapter 8 of the MCAA, unless otherwise specified, the Coordinating Body Secretariat is responsible for notifying all competent authorities of any notices received under the agreement and informing all signatories about newly added competent authorities.

Additionally, all signatories of the MCAA must equally share the annual costs incurred by the Coordinating Body Secretariat in administering the agreement. However, countries meeting certain conditions may be exempted from cost-sharing.

Annexes

Among the publicly available materials, only Annex VI has been disclosed. Other annexes remain confidential. Annex VI merely specifies the planned dates for exchanging information, which holds limited significance.

China’s CRS Implementation – State Taxation Administration Announcement No. 14 (2017)

The primary purpose of the MCAA is to provide the international legal foundation for implementing the Common Reporting Standard (CRS). It defines the competent authorities, content, timing, format, and confidentiality requirements for information exchange. However, international agreements alone are insufficient; they must be implemented domestically through legislation or other means.

So, how has China implemented the MCAA and CRS? The answer lies in the State Taxation Administration Announcement No. 14 (2017), titled the "Administrative Measures for Due Diligence on Tax-Related Information of Non-Resident Financial Accounts" (referred to as "Announcement No. 14").

Article 1 of Announcement No. 14 explicitly states that China enacted the regulation to fulfill its obligations under the MCAA. It aims to standardize the due diligence process for financial institutions regarding tax-related information of non-resident financial accounts, in accordance with the Tax Collection Administration Law of the People’s Republic of China, the Anti-Money Laundering Law, and other relevant laws and regulations.

While Announcement No. 14 primarily focuses on implementing CRS requirements for financial institutions, it has limited direct relevance to the MCAA, which is an agreement between jurisdictions rather than between jurisdictions and financial institutions. Nevertheless, traces of the MCAA can still be found in Announcement No. 14:

1. Reporting Requirements

The MCAA’s Chapter 2, "Exchange of Information on Reportable Accounts," outlines reporting obligations, including responsibilities for information exchange and account holder information. These requirements are reflected in Article 35 of Announcement No. 14. However, Announcement No. 14 also adds additional information reporting requirements mandated by the State Taxation Administration.

2. Timing and Methods of Information Exchange

Chapter 3 of the MCAA specifies the timing and methods for financial information exchange, requiring China to exchange information with other jurisdictions by September each year. Article 36 of Announcement No. 14 requires financial institutions to report to the State Taxation Administration by May 31 each year.

3. Confidentiality and Data Protection

Chapter 5 of the MCAA mandates that all exchanged information be kept confidential and adequately protected. Article 4 of Announcement No. 14 requires financial institutions to properly safeguard the materials collected during due diligence and to strictly maintain confidentiality.

Interestingly, Announcement No. 14 also mentions that, in addition to fulfilling the MCAA, China must also comply with the Convention on Mutual Administrative Assistance in Tax Matters (commonly referred to as the "Multilateral Convention"). If CRS is the operational guideline for financial information exchange, and the MCAA is the legal framework, then the Multilateral Convention serves as the constitutional foundation. We will explore the key provisions of the Multilateral Convention in a future discussion.