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China’s Outward Direct Investment (ODI) regime channels substantial capital abroad each year. For global wealth managers, trustees, funds, and private banks, this represents significant opportunity—but also heightened regulatory scrutiny.

In this episode, we explore how ODI-related capital can be engaged lawfully and transparently, while managing cross-border risk.

🌏 The Opportunity

Approved ODI flows, once cleared by authorities such as:

1. National Development and Reform Commission (NDRC)
2. Ministry of Commerce of the People's Republic of China (MOFCOM)
3. State Administration of Foreign Exchange (SAFE)

may be deployed internationally for:

• Infrastructure and real estate

• Private equity and venture capital

• Portfolio diversification

• Family office structuring

• Cross-border corporate expansion

Switzerland, Singapore, Luxembourg, and other financial centres are frequent destinations due to regulatory stability and deep capital markets.

⚖️ The Compliance Reality

Any cross-border structuring must operate within:

• Local capital controls and foreign exchange rules

• Anti-money laundering (AML) and KYC standards

• Beneficial ownership transparency requirements

• The Common Reporting Standard (CRS)

• FATCA (where applicable)

The global transparency environment—driven by the Organisation for Economic Co-operation and Development—means that attempts to structure purely for secrecy face escalating enforcement risk.

🧠 Where Real Advisory Value Lies

Rather than focusing on concealment, sophisticated advisory work now centres on:

1️⃣ Structuring for Substance

Ensuring governance, control, and operational purpose align with regulatory expectations.

2️⃣ Regulatory Navigation

Coordinating ODI approvals, SAFE compliance, and foreign jurisdiction requirements.

3️⃣ Risk Diversification

Deploying capital into jurisdictions with legal certainty, strong fiduciary standards, and predictable enforcement.

4️⃣ Asset Protection (Within the Law)

Using reputable legal frameworks—such as well-regulated trust jurisdictions—to manage litigation and succession risk while remaining compliant with disclosure obligations.

🌍 Jurisdictional Considerations

Wealth management hubs such as:

1. Switzerland
2. Singapore
3. Luxembourg

compete not on secrecy, but on:

• Rule of law

• Judicial reliability

• Regulatory sophistication

• Professional ecosystem depth

🎯 Key Takeaway

ODI creates meaningful wealth management opportunities—but the era of opacity-driven structuring is over.

Sustainable strategies must prioritise:

• Transparency

• Regulatory alignment

• Economic substance

• Long-term defensibility

Capital mobility today is governed as much by compliance architecture as by financial strategy.

China’s Outward Direct Investment (ODI) strategy operates on two parallel tracks: large-scale state-backed projects under the Belt and Road Initiative (BRI) and substantial overseas investment by private Chinese enterprises.

While government-led projects dominate headlines, private Chinese companies invest nearly USD 200 billion per year abroad, making ODI a critical pillar of China’s global economic footprint.

🔎 The Strategic Framework1️⃣ The Belt and Road Initiative (BRI)

Launched under the leadership of Xi Jinping, the BRI builds conceptually on historic trade networks that once connected China to the West.

These routes include:

1. The Silk Road journeys associated with Marco Polo
2. The travels of Ibn Battuta across Muslim regions
3. The maritime expeditions of Ming admiral Zheng He

🛤️ “Belt” and “Road” ExplainedThe “Belt” — Silk Road Economic Belt

Refers to overland infrastructure corridors:

1. Rail and road routes through Central Asia
2. Land connections linking China to Europe
3. Logistics hubs and industrial corridors

The “Road” — 21st Century Maritime Silk Road

Refers to Indo-Pacific sea routes:

1. Southeast Asia
2. South Asia
3. The Middle East
4. Africa

This maritime network already carries more than half of global container traffic, making port infrastructure a strategic focus.

🌍 Scale and Reach

Some estimates describe the BRI as one of the largest infrastructure and investment projects in modern history, involving more than 68 countries.

Projects include:

1. Deep-water ports
2. Railways and highways
3. Airports and bridges
4. Skyscrapers and logistics zones
5. Energy infrastructure (including dams and power stations)
6. Railway tunnels and industrial parks

💼 The Role of Private ODI

Beyond state-backed infrastructure, China’s ODI also includes:

1. Manufacturing expansion
2. Technology investments
3. Real estate acquisitions
4. Resource development
5. Strategic equity stakes

Private enterprise ODI plays a major role in integrating Chinese firms into global supply chains.

🎯 Key Takeaway

China’s ODI is not a single policy—it is a dual strategy:

• State-driven geopolitical infrastructure under the BRI

• Large-scale private enterprise global expansion

Together, they represent a long-term effort to reshape trade connectivity, supply chains, and economic influence across Asia, Africa, Europe, and beyond.

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.

This episode looks at an often-cited but rarely analysed source: the OECD CRS FAQ on General Reporting Requirements, specifically Page 2, Question 7, dealing with the look-through requirement.

The key issue:

Does the FAQ require look-through where an equity interest in a Financial Institution is held by another Financial Institution?

📘 What the OECD CRS FAQ Says

The FAQ issued by the Organisation for Economic Co-operation and Development addresses when a reporting Financial Institution must apply a look-through approach.

In Page 2, Question 7, the FAQ refers to situations where an “entity” holds an account and discusses when controlling persons must be identified.

Notably:

• The FAQ uses the generic term “entity”

• It does not explicitly state that this includes Financial Institutions

• It does not override the CRS definition of non-reportable entities

🧱 The Structural Context

Under the CRS framework:

• Financial Institutions are generally non-reportable persons

• Due diligence applies only to Reportable Accounts

• Accounts held by non-reportable entities are not subject to look-through

The FAQ does not amend these structural definitions—it provides interpretative clarification.

⚖️ The Interpretative Question

The debate arises from how the word “entity” in the FAQ should be read:

Interpretation A:

“Entity” includes all entities, including Financial Institutions → look-through applies universally.

Interpretation B:

“Entity” must be read consistently with the CRS structure → look-through applies only where the entity is a Reportable Person (e.g., Passive NFE), not where it is a Reporting FI.

The FAQ does not expressly state that Financial Institutions lose their non-reportable status for equity interest purposes.

🎯 Why This Matters

If the term “entity” in the FAQ were interpreted to automatically include Financial Institutions:

• The FI “blocker” principle would weaken

• Duplicate reporting risks could arise

• The “closest FI” allocation model could be disrupted

If interpreted consistently with the CRS definitions:

• Financial Institutions remain non-reportable persons

• Look-through applies to Passive NFEs

• Reporting responsibility remains structurally allocated

🔑 Key Takeaway

The OECD CRS FAQ on General Reporting Requirements refers broadly to an “entity” but does not explicitly extend look-through to Financial Institution entities.

Whether that silence implies inclusion or exclusion remains the crux of the interpretative debate.

For trustees and compliance professionals, the critical lesson is:

CRS interpretation must align FAQ guidance with the core structural definitions of the Standard itself.

This episode examines a pivotal provision in the CRS Commentary—paragraph 178 (Section VIII, C(4))—and its implications for trusts that qualify as Reporting Financial Institutions (FI-trusts).

The key issue:

When equity interests in an FI are held through a Custodial Institution, who reports?

📘 The CRS Commentary (p. 178, C(4) – Equity Interest)

Under the Commentary issued by the Organisation for Economic Co-operation and Development, paragraph 69 clarifies that:

In the case of a trust that is a Financial Institution, an “Equity Interest” is considered to be held by any person treated as a settlor or beneficiary of all or a portion of the trust, or by any other natural person exercising ultimate effective control over the trust.

This defines who holds an equity interest in an FI-trust.

Paragraph 70 then adds a critical allocation rule:

Where Equity Interests are held through a Custodial Institution, the Custodial Institution is responsible for reporting, not the Investment Entity.🧱 The Reporting Allocation Principle

The Commentary provides a concrete example:

• Reportable Person A holds shares in Investment Fund L

• A holds those shares in custody with Custodian Y

• Fund L is an Investment Entity (an FI)

• Custodian Y is a Custodial Institution (an FI)

Under the CRS:

• Fund L treats Custodian Y as its account holder

• Because Y is a Financial Institution, it is not a Reportable Person

• Therefore, L does not report

Instead:

• Custodian Y reports the shares it holds for A

• Reporting responsibility rests with the FI closest to the Reportable Person

This illustrates the “closest FI” principle and prevents duplication.

⚖️ The Interpretative Tension

The Commentary appears explicit:

• If equity interests are held through a Custodial Institution

• The Custodial Institution reports

• The upstream FI does not look through

Critics argue that requiring FI-trusts to look through **all entities—including non-reportable entities such as Custodial Institutions—**conflicts with:

• Paragraph 70 of the Commentary

• The non-reportable status of Financial Institutions

• The structural allocation of reporting responsibility

Supporters may argue that broader transparency objectives justify expanded look-through in certain contexts.

🎯 Why This Matters

This debate is not theoretical. It affects:

• Whether FI-trusts must look through FI equity holders

• Whether Financial Institution status functions as a reporting “blocker”

• The risk of duplicate or redundant reporting

• Consistency between CRS text and administrative interpretation

At its core, the Commentary example reinforces a structural rule:

When an equity interest is held through a Custodial Institution, reporting responsibility rests with that Custodial Institution—not the upstream FI.

Understanding this allocation principle is critical for trustees, compliance officers, and cross-border advisors navigating divergent national interpretations.

This episode examines a core structural rule of the Common Reporting Standard (CRS):

Financial Institutions are non-reportable persons and must not be looked through for due diligence purposes.

We analyse the relevant CRS provisions and explore why this principle is central to the reporting framework.

🔎 The CRS Due Diligence Architecture

Under the CRS issued by the Organisation for Economic Co-operation and Development, reporting obligations are carefully tiered.

Only Reportable Accounts are subject to due diligence.

This distinction is fundamental.

📘 CRS Textual BasisCRS, p. 38 – Pre-Existing Entity Accounts

The Standard states:

Only reportable accounts are subject to due diligence.

It further clarifies that accounts held by non-reportable entities—including:

• Financial Institutions (e.g., custodial institutions)

• Central banks

• Government entities

• International organisations

• Regularly traded corporations

—are not subject to due-diligence procedures.

CRS, p. 41 – New Entity Accounts (Section VI)

Section VI requires a determination of whether an entity account is a reportable account.

Where the account holder is a non-reportable entity, including a Financial Institution:

➡️ The entity must not be looked through.

The due diligence obligation ends at that level.

🧱 The Structural Principle

The CRS is built on an allocation model:

• Financial Institutions report

• They are generally not reported on (in their capacity as FIs)

• Look-through applies to Passive NFEs—not to Reporting FIs

This prevents:

• Duplicate reporting

• Administrative inefficiency

• Confusion over responsibility

⚖️ The Interpretative Question

Against this background, debate arises where guidance suggests that FI-trusts should look through entity equity holders—even where those entities qualify as Financial Institutions.

The textual question becomes:

If the CRS explicitly states that non-reportable entities must not be subject to look-through, can administrative interpretation require otherwise?

Critics argue this creates tension with:

• The no-look-through rule for non-reportable entities

• The structural allocation of reporting responsibility

• The prohibition against duplicative reporting

Supporters argue the approach enhances transparency.

🎯 Why This Matters

This is not a narrow drafting issue—it affects:

• How FI-trusts classify equity interest holders

• Whether FI status acts as a reporting “blocker”

• The integrity of the CRS due diligence hierarchy

At stake is a foundational principle:

Non-reportable entities, including Financial Institutions, are not subject to look-through under CRS due diligence rules.

Understanding this architecture is essential for trustees, compliance officers, and advisors operating across jurisdictions with divergent interpretations.

This episode examines a narrow but consequential interpretative issue:

Did Switzerland extend the CRS look-through rules for FI-trusts beyond what the OECD Implementation Handbook actually provides?

The debate centers on Chapter 6.3 of the CRS Implementation Handbook, specifically paragraphs 254–256 (pp. 109–110), dealing with trusts that qualify as Reporting Financial Institutions.

🔎 The Text of the HandbookParagraph 254 – Identifying Reportable Accounts

The Handbook states:

The debt and equity interests of a trust constitute Reportable Accounts where they are held by a Reportable Person.

It then clarifies that the CRS defines the following entities as non-reportable persons:

• Financial Institutions

• Regularly traded entities

• Central banks

• International organisations

• Government entities

This establishes the starting point:

If the equity interest is held by a Financial Institution, it is not a Reportable Person.

Paragraph 256 – Applying the Due Diligence Rules

The Handbook further states:

Where an equity interest is held by an Entity, the equity interest holder is instead identified as the Controlling Persons of that Entity.

It then explains that a trust must apply a look-through approach to a settlor, trustee, protector, or beneficiary that is an Entity to identify the relevant Controlling Persons—corresponding to AML/KYC beneficial ownership principles.

⚖️ The Interpretative Fault Line

The controversy arises from how the term “Entity” is read in paragraph 256.

The critical observation:

Nowhere—explicitly or implicitly—does paragraph 256 state that “Entity” includes non-reportable entities such as Financial Institutions.

Paragraph 254 has already distinguished:

• Reportable Persons

• Non-reportable entities (including FIs)

The textual argument advanced by critics is therefore:

If paragraph 254 establishes that Financial Institutions are non-reportable persons, and paragraph 256 refers to “Entities” without overriding that distinction, then the look-through rule logically applies only where the entity is a Reportable Person (e.g., Passive NFE), not where it is a Reporting FI.

🇨🇭 The Swiss Position

Swiss revised guidance interpreted paragraph 256 as requiring FI-trusts to:

• Look through entity equity holders

• Identify and report controlling persons

—even where the entity is itself a Financial Institution.

Critics argue that this effectively:

• Treats FI equity interest holders similarly to Passive NFEs

• Removes the structural “FI blocker” principle

• Expands reporting beyond the CRS text

Supporters argue the approach aligns with transparency objectives and AML alignment.

🎯 Why This Matters

The dispute is not about transparency—it is about architectural coherence.

If Financial Institutions are non-reportable persons by design, then requiring look-through of FI equity interests may:

• Create duplicate reporting

• Disrupt the “closest FI” allocation principle

• Blur the boundary between FI and Passive NFE treatment

The question is whether the Implementation Handbook clarified the Standard—or extended it.

🔑 Key Takeaway

Paragraphs 254–256 of the CRS Implementation Handbook distinguish clearly between:

• Reportable Persons

• Non-reportable entities (including Financial Institutions)

The debate turns on whether “Entity” in paragraph 256 implicitly overrides that distinction—or must be read consistently with it.

For trustees and advisors, this illustrates a broader reality:

CRS compliance increasingly depends not only on the text of the Standard, but on how jurisdictions interpret administrative guidance layered on top of it.

The Core CRS / FATCA Principle: No Look-Through of Financial Institutions

At the heart of both CRS and FATCA lies a fundamental architectural rule:

Financial Institutions (FIs) are not treated as reportable persons.

This is not accidental—it is structural. In this episode, we unpack why the system is designed this way and why requiring look-through of Financial Institutions can undermine the logic of the framework.

🔎 The Structural Logic of CRS & FATCA

Under the Common Reporting Standard issued by the Organisation for Economic Co-operation and Development and under FATCA:

• Financial Institutions are Reporting Entities

• They are generally not Reportable Persons

• The system is designed to avoid duplicate and redundant reporting

The objective is administrative efficiency and clarity of responsibility.

🏗️ Why No Look-Through of Financial Institutions?

If a Financial Institution were required to look through another FI:

• The upstream FI would report

• The downstream FI would also report

• The same underlying individual could be reported twice

This would create:

• Duplication

• Administrative inefficiency

• Increased risk of inconsistent reporting

• Systemic complexity

To prevent this, the OECD framework allocates reporting to the FI closest to the reportable person—the institution best positioned to know its account holder.

📌 The “Closest FI” Principle

The OECD has repeatedly emphasized that reporting responsibility should rest with the Financial Institution that:

• Maintains the account

• Has direct access to the account holder

• Conducts due diligence

This ensures reporting is:

• Centralized

• Accurate

• Non-duplicative

⚖️ The Controversy in Practice

When an FI-trust is required to look through FI equity interests, as seen in certain interpretative approaches, the result may be:

• Reporting by the FI-trust

• Reporting by the institutional FI

• Potential duplication of the same underlying individuals

Critics argue that this outcome conflicts with the core CRS principle against redundant reporting.

Supporters may argue that such look-through enhances transparency—but it arguably shifts the architecture from allocation of responsibility to expansion of responsibility.

🎯 Key Takeaway

The CRS and FATCA systems are built on a simple but powerful structural rule:

Financial Institutions report — they are not reported on (in their capacity as FIs).

Requiring look-through of Financial Institutions risks:

• Blurring that structural boundary

• Creating duplication

• Departing from the “closest FI” reporting principle

Understanding this architecture is essential for trustees, compliance officers, and advisors navigating evolving interpretations of CRS and FATCA.

In this episode, we examine a controversial development in Swiss CRS practice: the extension of look-through obligations for trusts that qualify as Reporting Financial Institutions (FI-trusts).

The issue centers on whether a trust must look through entity account holders—even when those entities themselves qualify as Financial Institutions.

🔎 The Legal Background

Under the Common Reporting Standard (CRS) issued by the Organisation for Economic Co-operation and Development, an account holder that qualifies as a Financial Institution (FI) is generally a non-reportable person.

For FI-trusts, equity interest holders are typically:

• The settlor

• The beneficiary

• Any natural person exercising ultimate effective control

Where such persons are themselves Reporting FIs, the traditional interpretation is that reporting stops at that institutional level.

📘 The OECD Implementation Handbook Influence

The controversy arose from language in the OECD CRS Implementation Handbook, which states that:

Where an equity interest is held by an entity, the equity interest holders are the controlling persons of that entity.

This has been interpreted by some jurisdictions to require trusts to look through entity settlors, trustees, protectors, or beneficiaries to identify natural controlling persons.

🇨🇭 Switzerland’s 2021 Revision

In 2021, guidance issued by the State Secretariat for International Finance (SIF) and adopted by the Swiss Federal Tax Administration revised Switzerland’s CRS position.

The Revised Swiss CRS Guidance introduced an obligation for FI-trusts to:

• Look through entity account holders

• Identify and report the controlling persons

—even where the entity itself qualifies as a Financial Institution.

This effectively removes the traditional “FI blocker” concept.

⚖️ The Core Debate

Critics argue that this approach:

• Conflicts with the text of the CRS itself

• Conflates Financial Institutions with Passive NFEs

• Treats FI equity interest holders similarly to Passive Non-Financial Entities

• Expands reporting obligations beyond the Standard

Supporters contend that:

• The OECD Implementation Handbook clarifies the intended scope

• The FI status of an entity does not eliminate the need to identify natural persons ultimately connected to the trust

• The approach enhances transparency and consistency

🎯 Why This Matters

The question is not merely academic. It affects:

• The scope of reporting by FI-trusts

• The treatment of institutional settlors and beneficiaries

• Whether FI status acts as a reporting “blocker”

• The balance between textual interpretation and administrative guidance

At its core, this debate illustrates a broader tension within CRS implementation:

Does administrative clarification expand obligations, or merely explain them?

🔑 Key Takeaway

Switzerland’s revised approach reflects a broader trend toward substance-over-form transparency. Whether it constitutes a reinterpretation or an expansion of the CRS remains debated among practitioners.

For advisors and trustees, the lesson is clear:

CRS compliance now depends not only on the Standard itself—but also on how individual jurisdictions interpret and implement it.

Understanding who counts as an equity interest holder is central to how the Common Reporting Standard (CRS) operates for trusts that qualify as Reporting Financial Institutions (FIs). In this episode, we break down the legal definitions, explain why this classification matters, and clarify a common area of confusion around look-through rules.

🔎 The CRS Framework: Why Equity Interest Holders Matter

At the heart of the CRS is the obligation imposed on Reporting Financial Institutions—including certain trusts—to identify their financial accounts and determine whether those accounts are reportable accounts.

This identification process determines who gets reported, to which tax authority, and why.

🧾 What Counts as a “Financial Account”?

Under Section VIII.C.1 of the CRS, a Financial Account includes, in the case of an Investment Entity, any equity or debt interest in the FI.

➡️ For a trust that qualifies as an FI, this means the focus shifts to who holds an equity interest in the trust.

👥 Who Is an Equity Interest Holder in a Trust?

The CRS provides a specific definition:

An Equity Interest in a trust is considered to be held by:

• Any person treated as a settlor

• Any person treated as a beneficiary (of all or part of the trust)

• Any other natural person exercising ultimate effective control over the trust

These persons are treated as account holders for CRS purposes.

🧠 Why This Identification Is Critical

Correctly identifying equity interest holders determines:

• Whether an account is reportable

• Which persons must be assessed as reportable persons

• The scope of the trust’s CRS reporting obligations

Errors at this stage can lead to over-reporting, under-reporting, or misclassification.

🇨🇭 Swiss CRS Guidance as an Example

Early CRS guidance issued by the Swiss Federal Tax Administration closely tracked the CRS itself. It confirmed that, for a trust qualifying as an FI, equity interest holders are limited to:

• The settlor

• The beneficiary

• Any other natural person exercising ultimate effective control

No additional categories were introduced.

🚫 No Look-Through for Reporting FIs

A key clarification often missed in practice:

• Equity interest account holders are not subject to a look-through approach where the account holder is a Reporting FI

• The only exception is where the entity is a non-participating investment entity, which is treated as a Passive NFE

Outside that narrow exception, reporting stops at the FI level.

🎯 Key Takeaway

For trusts that qualify as Reporting Financial Institutions:

• Equity interest holders are settlor(s), beneficiary(ies), and natural persons with ultimate effective control

• These persons are treated as account holders

• No look-through applies when the account holder itself is a Reporting FI

• Proper classification is essential to getting CRS reporting right

Understanding this distinction is critical to avoiding incorrect look-through assumptions and ensuring accurate, defensible CRS compliance.