(by Harry Yu 余亮恒)
The Question Behind the Noise
Over the past few weeks, a similar question has been coming up repeatedly in client conversations.
Not framed in technical terms, but in a much simpler way:
Do these cross-border structures still work?
The question is rarely spontaneous. It is usually triggered by something the client has seen or heard — a Bloomberg article discussing offshore trusts holding Hong Kong-listed shares, a WeChat post suggesting that structures are now being “looked through,” or more recently, references to something described as “CRS 2.0.”
Individually, these signals appear isolated. Taken together, they are shaping a broader narrative. And that narrative is beginning to influence behaviour.
What Is Actually Happening
The term “CRS 2.0” has emerged from market conversations rather than formal policy. There is no new regime under that name.
What we are seeing instead is an evolution — not so much of rules, but of how those rules operate in practice.
In Hong Kong, enhancements to the AEOI regime have introduced stronger documentation expectations, more structured compliance processes, and greater accountability across institutions. CRS is no longer simply a reporting exercise. It is becoming part of an ongoing operational environment.
On the Mainland side, the shift feels different. Data that has been accumulated over time is now being used more actively, often alongside other available information, to form a more complete picture of how cross-border arrangements operate.
Put together, it starts to feel like something has shifted.
What Practitioners Are Actually Seeing
What is being described as “CRS 2.0” is not a single regulatory change.
In practice, it reflects a change in how existing information is used.
For several years, CRS functioned primarily as a reporting framework. Information was collected and exchanged, but its practical impact was often limited to compliance.
What we are now seeing feels different.
The same data is being used more actively — connected, cross-referenced, and interpreted alongside other sources of information. At the same time, there is greater focus on whether structures operate in a way that is consistent with their intended purpose.
Financial institutions are also responding. In areas that were previously treated as judgement calls, there is now a tendency to take more conservative positions.
Taken together, this creates the impression that something has changed — even if the underlying rules have not fundamentally shifted.
Offshore Trusts: Validity vs Integrity
Recent reporting has highlighted cases where Mainland tax authorities have requested further information on offshore trust arrangements involving Chinese settlors, particularly where these structures hold Hong Kong-listed shares or generate cross-border income.
In some parts of the market, this has quickly been interpreted as a signal that offshore trusts no longer work.
That is not what is happening.
Trusts remain valid legal structures. What is being tested is whether they are being used in a way that is consistent with their design.
This comes down to whether trustee independence is genuinely exercised, whether decisions are made within the structure rather than outside it, and whether the arrangement can be explained coherently when examined.
The distinction is subtle, but it is fundamental.
VIEs and the Question of Substance
A similar pattern is emerging in discussions around VIE and red-chip structures.
There is increasing attention on whether these arrangements have a clear commercial rationale and whether they reflect the underlying business reality.
In practice, this often comes down to three questions:
Who is exercising control? Where are key decisions actually made? Does the structure reflect how the business operates in reality?
This has led to the perception that such structures are being phased out.
In practice, the shift is more nuanced. Structures are not being rejected simply because they exist. They are being examined in terms of why they were created and whether they can be justified in context.
The emphasis is gradually moving away from whether something can be constructed, toward whether it can be defended.
The Market Reaction
Across Mainland platforms and informal discussions, these developments are often interpreted in stronger terms. Offshore structures are said to be “no longer safe,” and arrangements are described as being “seen through.”
From a practitioner’s perspective, this is not the correct conclusion.
What has changed is not the validity of structures, but the way they are being evaluated.
Structures are not necessarily failing — they are being tested in ways they weren’t before.
When Correct Structures Still Don’t Work
In many of the situations currently being discussed, the cross-border structures themselves are technically sound.
Documentation is in place. Legal frameworks are robust. Advisers are experienced.
And yet, problems still arise — not at the point of setup, but later.
When the structure is used. When something needs to change. Or when assumptions are tested.
In practice, this is where things start to get messy.
By this point, most practitioners will recognise the pattern.
The Problem of Interaction
Clients often approach structuring through a single entry point.
“I need a trust.”
Advisers respond accordingly. Each solution is reasonable. Each answer is technically correct.
But cross-border situations are rarely one-dimensional. They involve business structure, personal ownership, tax residency, and governance considerations, all interacting at the same time.
The issue is not complexity — it is how that complexity is handled.
Each adviser addresses their own part. Each answer makes sense.
But when these answers need to work together, they do not always fit.
Correct answers in isolation do not necessarily produce a coherent outcome.
A Practical Observation
Consider a client with a pre-IPO business, a cash-generating business under full control, and a startup with partners.
From a structuring perspective, placing these under a trust may be entirely feasible.
But in a pre-IPO context, that same structure may affect how investors assess control. In other parts of the portfolio, it works well.
What appears to be a single structuring decision is, in reality, a system of interacting decisions.
Sequencing — The Overlooked Variable
In practice, the issue is often not the choice of structure, but the order in which decisions are made.
Structures are implemented before key questions are resolved — how control will be exercised, how decisions will evolve, and how different elements interact.
Once those decisions are fixed, the structure becomes difficult to unwind.
Many failures are not structural errors. They are sequencing errors.
The Interface Between Systems
In cross-border work, the challenge rarely sits within one system.
It sits between systems.
Mainland-side advisers understand the client and context. Hong Kong practitioners bring structural and cross-jurisdictional expertise.
Both are essential. But they do not naturally align.
That space in between — where assumptions differ, where decisions are interpreted differently, and where structures meet behaviour — is where most issues arise.
And increasingly, it is also where the real value sits.
What This Means in Practice
For practitioners, this does not mean that existing cross-border structures need to be unwound.
It means they need to be examined differently.
In particular, it means asking:
whether decision-making is consistent with the structure, whether control is exercised in a way that can be supported, and whether the overall arrangement can be explained coherently across jurisdictions.
In practice, this often leads to a shift in conversation.
Not “what structure should we build,” but “what needs to be clarified before we commit to one.”
Closing Reflection
The language of “CRS 2.0” may not be technically precise. But it reflects a real shift in perception.
Cross-border structures are no longer judged only by their design. They are judged by whether they can withstand scrutiny — not only legally, but operationally.
Structures are not failing. They are being tested.
And when they are tested,
what matters is not whether the structure exists — but whether it can be defended.
References
- Bloomberg, “China Targets Offshore Trusts in Tax Scrutiny of Ultra-Rich,” March 2026
- Hong Kong SAR Government, Inland Revenue (Amendment)
- (Automatic Exchange of Financial Account Information) Bill 2026
- OECD, Common Reporting Standard (CRS) — implementation updates
- Market observations and practitioner discussions on VIE and red-chip structures across Mainland China and Hong Kong
About the Author:
Mr. Harry Yu 余亮恒
TEP, CTP
Honorary Director, CUHK Centre for Family Business
Harry Yu is the Honorary Director at The Chinese University of Hong Kong’s Center for Family Business (CFB), where he contributes to research and education in family governance and intergenerational succession. His published case studies on prominent Hong Kong multigenerational families are incorporated into CUHK’s curriculum, supporting the professional development of the family office sector. Based in Shanghai for over two decades, Harry has extensive experience collaborating with family offices in China, helping them navigate the complexities of global expansion and cross-border wealth planning. He leads the private client services at Fung Yu Trust, specializing in trust structuring and family office solutions for ultra-high-net-worth families. Fung Yu & Co., founded by his father, is a family-operated firm celebrating its 60th anniversary. As one of Hong Kong’s longest-established firms in financial management, tax, and fiduciary services, Fung Yu & Co. serves clients through offices in Hong Kong, mainland China, and Europe. With its deep roots in Hong Kong and Harry’s extensive connections in China, the firm provides clients with a uniquely integrated perspective across both markets.
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