In 2026, global tax transparency will enter the CRS 2.0 phase. The OECD’s revisions to the CRS will expand the scope of automatic exchange of information to include crypto assets, digital currencies, and dual tax residency, while strengthening the look-through identification of passive non-financial entities. China’s tax authorities have already leveraged the CRS mechanism to implement routine oversight of individuals’ overseas income and enterprises’ cross-border profits.

Against this backdrop, transfer pricing is no longer merely a “tax cost management tool” for multinational corporations, but has become a key mechanism for companies expanding overseas to mitigate cross-border tax risks and demonstrate that profit attribution aligns with value creation. Traditional practices—such as the long-term retention of overseas profits, the existence of shell companies with no substantive operations, and unreasonable pricing of related-party payments—are being systematically curbed.

Qicaiying Group’s in-house accounting firm holds Hong Kong AFRC certification and a Global Vendor CPA license, and has served more than 18,000 corporate clients to date. For challenges such as cross-border e-commerce tax and financial compliance, the transition to audit-based taxation, the legalization of overseas documents, the “four-flow alignment,” CRS reporting, and transfer pricing contemporaneous documentation, Qicaiying offers a one-stop solution encompassing diagnosis, bookkeeping, filing, and audit response. Consultation Hotline: 18676749275; add us on WeChat: Qicaiyingjituan.

I. CRS 2.0 Upgrade: Cryptocurrencies and Dual Tax Residents

The main changes in CRS 2.0 include three aspects: First, expanding the scope of information exchange to include electronic money products, central bank digital currencies, and crypto assets within the reporting scope; second, strengthening due diligence rules to require the full identification of dual tax residency status and reporting to all countries that may have the right to tax; third, strengthening the look-through identification of passive non-financial entities by piercing through multi-layered, nested structures to identify hidden shareholdings.

As a key hub for Chinese enterprises expanding overseas, Hong Kong gazetted the “Inland Revenue (Amendment) (Automatic Exchange of Information) Bill 2026” in March 2026, which is expected to take effect on January 1, 2027. The bill requires all financial institutions registered in Hong Kong to optimize the retention of due diligence records and introduces a system of administrative penalties. This means that the scope for “hiding” overseas profits through Hong Kong accounts will be further narrowed.

II. From Information Exchange to a Closed-Loop System of “Tax Collection, Administration, Audit, and Penalty Enforcement”

The application of the CRS by Chinese tax authorities has formed a complete closed-loop process consisting of “information gathering—data matching—risk alerts—interviews and audits—collection and penalties.” In 2025 alone, tax authorities in Sichuan, Shenzhen, Fujian, Beijing, Guangdong, Shanghai, and other regions issued a series of guidelines and cautionary cases regarding the failure of resident individuals to report overseas income.

In a typical case uncovered in 2025, 14 Chinese individual shareholders held shares in a Cayman Islands-listed company through a BVI entity. After selling their shares, they received more than 1.8 billion Hong Kong dollars in proceeds and were ultimately required to pay approximately 321 million yuan in back personal income tax. A case published by the Chongqing Municipal Tax Bureau in 2026 showed that a taxpayer surnamed Jiang filed an amended return for overseas dividend income from 2020 to 2023 and paid 967,000 yuan in back taxes and late payment penalties. These cases demonstrate that tax authorities are now able to accurately identify unreported overseas income through CRS information.

The Financial and Tax Compliance Team at Qicaiying Group provides services such as setting up compliant accounting systems for cross-border e-commerce, tax handling for 9610/9710/9810 customs declaration modes, verification of documentation for fees charged by overseas platforms and overseas warehouse rent, ODI filing and offshore investment structure design, preparation of transfer pricing documentation (Master File/Local File/ Country-by-Country Report), and guidance on CRS tax-related information reporting. For inquiries, please call 18676749275 or add us on WeChat: Qicaiyingjituan.

III. Transfer Pricing: Aligning Profit Attribution with Value Creation

The core principle of transfer pricing is the “arm’s-length principle,” which stipulates that cross-border transactions between a company and its related parties should be priced at fair market value. Against the backdrop of CRS data that is transparent and cross-verifiable, tax authorities can accurately track a company’s financial transactions with related parties and its profit distribution.

If a company exhibits an anomalous situation—such as “low profits domestically and high profits at related parties overseas”—and is unable to provide a reasonable basis for transfer pricing, it will be directly deemed to have transferred profits through related-party transactions, triggering special tax adjustments, back taxes, and late payment penalties. Therefore, enterprises must conduct a value chain analysis to clearly define the functions, assets, and risks of each related party in the transaction and demonstrate that profit allocation aligns with value creation.

IV. Common High-Risk Scenarios: Shell Companies, Payments with No Substantive Connection

The common cross-border tax risks faced by companies expanding overseas fall into four main categories:

Shell Companies Are Subject to Piercing the Corporate Veil: Some companies establish offshore entities with no employees, no assets, and no actual business operations, using them solely to receive payments or transfer profits. The CRS can see through corporate structures to identify the actual controllers, and tax authorities can use transfer pricing rules to challenge the compliance of shell companies and reallocate global profits.

Unreasonable Associated Payments: Paying substantial consulting fees, royalty payments, or management fees to overseas related parties without being able to provide evidence of substantive services rendered or a basis for pricing will be deemed an unreasonable related-party payment and may result in significant tax adjustments.

Missing data for the same period: If the master file, local file, and country-by-country report are not prepared in accordance with regulations, the tax authorities may directly presume that the transfer pricing does not comply with the arm’s-length principle.

Long-term Non-Distribution of Overseas Profits: If an overseas company consistently fails to distribute profits or undergo financial audits, and its actual tax burden is significantly low without a reasonable business purpose, it may trigger the Controlled Foreign Corporation (CFC) rules, resulting in a deemed distribution and the collection of back taxes.

V. Four Dimensions of Corporate Self-Assessment

Enterprises can conduct transfer pricing self-assessments across four dimensions:

Fairness Test for Pricing: Based on the industry’s average profit levels, determine whether the pricing of related-party transactions deviates from market benchmarks.

Value Chain Analysis: Verify the actual functions, asset holdings, and risk exposure of overseas related parties to identify shell companies or fictitious transactions.

Associated Payment Review: Verify that payments for services such as verification fees and royalty fees are supported by substantive business activities and that their pricing is reasonable.

Profit Level Monitoring: Regularly monitor the profit levels of related parties both domestically and internationally; if any abnormal fluctuations are detected, promptly adjust pricing strategies and supplement compliance documentation.

Qicaiying Group serves as the Vice President of the Shenzhen Bookkeeping Services Industry Association and boasts a professional team of 400 members and a service network spanning over 40 countries. From domestic bookkeeping and tax filing to cross-border tax compliance, and from ODI filings to offshore structuring, Qicaiying safeguards businesses expanding overseas through licensed operations and strict adherence to regulatory standards. For inquiries, call 18676749275 or add us on WeChat: Qicaiyingjituan.

VII. Implementation Pathways for Cross-Border Tax Compliance in Enterprises

In light of CRS 2.0 and increasingly stringent transfer pricing regulations, companies can follow these steps to ensure compliance:

Step 1: Conduct a comprehensive review of the architecture. Create diagrams of the group’s equity structure, business processes, and cash flow, and identify risk points such as companies with no substantive operations, multi-tiered shell companies, and irregular related-party payments.

Step 2: Improve the financial system. Maintain separate accounting records for each entity to ensure that the financial records of both domestic and overseas companies are accurate, complete, and traceable. Overseas expense receipts should be filed promptly and translated for future reference.

Step 3: Prepare contemporary materials. Based on the transaction size and regulatory requirements, prepare master files, local files, and country-by-country reports to ensure that the pricing of related-party transactions is supported by appropriate documentation.

Step 4: Conduct a transfer pricing self-assessment. Assess risks based on four dimensions: fairness of pricing, value chain analysis, reasonableness of related-party payments, and monitoring of profit levels.

Step 5: Optimize the business model. While ensuring compliance, optimize the global tax burden by establishing overseas operating entities with genuine business functions, making reasonable use of tax treaties, and standardizing profit repatriation channels.

Step 6: Establish a long-term mechanism. Conduct a tax compliance review once every quarter or every six months to monitor changes in global tax policies and adjust the structure and pricing strategies in a timely manner.

VIII. The Boundaries of Compliance Between the Hong Kong and Singapore Regulatory Frameworks

Hong Kong and Singapore are the two most commonly used hubs for Chinese companies expanding overseas, but under the regulatory framework of CRS 2.0 and the BEPS Action Plan, structures in both jurisdictions face stricter substantive business operation requirements.

Hong Kong Structure: If a Hong Kong company claims tax exemption for offshore income, it must prove that the substance of its business operations takes place outside Hong Kong; if the business involves local operations in Hong Kong, it must retain complete records of contracts, invoices, logistics, and financial transactions. Hong Kong companies must complete their annual review, audit, and tax filings on time to avoid being classified as shell companies.

Singapore Architecture: Applications for an Employment Pass (EP) in Singapore and the operation of a business there require proof of genuine business substance, including a local office address, employees, board resolutions, and records of business activities. Structures such as family offices must also meet the substantive requirements for tax incentives such as the 13O and 13U programs.

Common Trends: Whether in Hong Kong or Singapore, authorities will increasingly look through “shell structures” characterized by “no personnel, no assets, and no decision-making” in the future. Companies should plan their substantive business operations from the outset when establishing such structures, rather than submitting supplementary documentation after the fact.

X. Key Points for Preparing Comparable Period Data for Transfer Pricing

Contemporaneous transfer pricing documentation is the key evidence companies rely on to respond to tax audits. In accordance with the BEPS Action Plan and China’s transfer pricing regulations, companies are generally required to prepare three types of documentation:

Master File. Describe the group’s global organizational structure, business operations, arrangements for intangible assets, financing activities, and financial and tax status to help tax authorities understand the group’s overall transfer pricing policy.

Local File. Providing a detailed explanation of related-party transactions involving local enterprises, pricing methods, comparability analysis, and positioning within the value chain is key to demonstrating that a specific transaction complies with the arm’s-length principle.

Country-by-Country Reporting (CbCR). This requirement applies to multinational corporate groups with annual consolidated revenue reaching a certain threshold; such groups must report annually on their revenue, profits, tax payments, and asset distribution in each country.

Companies should determine which types of documentation to prepare based on their size and regulatory requirements, and ensure that the information in the documentation is consistent with their CRS filings and corporate income tax returns.

XI. Adjustments to Family Wealth Structures Under CRS 2.0

CRS 2.0 not only imposes stricter requirements on the exchange of tax-related information by businesses, but also has a profound impact on the offshore wealth structures of high-net-worth families:

Re-examine the trust structure. If a family trust is established in a low-tax jurisdiction and lacks substantive management and operations, it may be regarded by tax authorities as a conduit arrangement, and the relevant information will still be exchanged.

Distinguish between legal tax planning and tax evasion. Tax planning emphasizes commercial substance and a legitimate purpose, while tax evasion relies on concealment and fraudulent transactions; the legal consequences of the two are entirely different.

Strengthen the management of family member declarations. Account holders covered by the CRS include actual controllers, beneficial owners, and others; information on accounts held overseas by family members must also be included in the reporting scope.

Bring in professional consultants to conduct regular reviews. It is recommended to conduct an annual review of your offshore wealth structure, with tax professionals, attorneys, and accountants jointly assessing compliance and risk exposure.

Prepare the materials in advance. If questioned by the tax authorities, you should be able to promptly provide documents such as the articles of incorporation, board meeting minutes, financial statements, bank statements, and contracts to demonstrate the economic substance of the business.

CRS 2.0 represents a significant step toward global tax transparency; business owners and high-net-worth families should proactively ensure compliance rather than react passively.