Hong Kong vs Switzerland: Look-Through Rules for Trust Equity Interests

This episode explores how different jurisdictions interpret the CRS look-through rules for trusts that qualify as Reporting Financial Institutions (FI-trusts)—and why the divergence between Hong Kong and Switzerland matters.

At the centre of the debate is a simple but technical question:

When an equity interest in an FI-trust is held by an entity, must the trust always look through that entity—even if it is itself a Financial Institution?📘 The CRS & Implementation Handbook Baseline

Under the CRS Implementation Handbook issued by the Organisation for Economic Co-operation and Development:

• Equity interests in an FI-trust are held by:

– The settlor

– The beneficiary

– Any other natural person exercising ultimate effective control (which at a minimum includes the trustee)

• A discretionary beneficiary is treated as an account holder only in years when a distribution is made.

• Where a settlor, beneficiary, or controlling person is an entity, that entity must be looked through to identify its ultimate natural controlling persons.

This is where interpretation begins to diverge.

🇭🇰 Hong Kong’s Approach

The position of the Inland Revenue Department (IRD) is that:

• The term “entity” in this context

• Does not include persons excluded from the definition of a reportable person

Under the CRS:

• Financial Institutions are non-reportable persons

• Therefore, they are not subject to look-through

In other words, in Hong Kong’s interpretation:

An FI acting as settlor, trustee, or beneficiary is not looked through.

This preserves the structural distinction between:

• Reporting FIs

• Passive NFEs

🇨🇭 Switzerland’s Approach

Swiss revised guidance has taken a broader interpretation, treating:

• “Entity” as including Financial Institutions

• Requiring FI-trusts to look through entity equity holders

• Identifying and reporting the controlling persons behind those entities

This effectively removes the traditional “FI blocker” principle.