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Automatic exchange of tax information on the CRS standard

20/ 12/ 2018
  Olexandr Bondarchuk. Managing partner of LA «Absolut» The topic of automatic exchange of tax information on the CRS (Common Reporting Standart) standard is not new, because it has been repeatedly covered by the media and submitted for discussion at conferences and forums. However, as the practice of communication with customers shows, unfortunately, many of people did not take the information properly or did not attach importance to the essence of this process. In the case of Ukraine’s accession to a single standard for the exchange of tax information, many unprepared citizens risk getting uncomfortable questions from regulatory authorities or worse, losing relatively honestly acquired foreign exchange and valuable property abroad. Begin According to the Decree of the Cabinet of Ministers of Ukraine on the system of currency regulation and currency control, as well as the National’s Bank of Ukraine Instructions on the procedure for issuing individual licenses for making investments abroad, investing currency values ​​(including corporate rights) by Ukrainian citizens abroad, assume individual NBU license. Some Ukrainians resorted to donation procedures and physically transferred funds outside Ukraine. Mitigation by the NBU in the approaches to the licensing of currency transactions of residents of Ukraine occurred only in 2017. At first, the NBU allowed the citizens of Ukraine to place currency values ​​in foreign accounts of individuals, indicating the source of origin outside Ukraine, with mandatory declaration of these incomes and payment of taxes in accordance with Ukrainian legislation. A little later, the NBU simplified obtaining an individual currency license, allowing individuals to citizens of Ukraine to obtain an electronic license under the simplified procedure through an authorized bank, limiting, nevertheless, the amount of investment to the equivalent of 50 thousand US dollars a year. Consequently, everything that is on the personal or corporate accounts of the subsidiary companies abroad, without the appropriate permits and declaration in Ukraine, is not entirely legitimate, and the confidentiality of foreign accounts will lose relevance in the near future. Then the tax inspectorate of the country of your tax residence will receive all the information automatically. About CRS standard CRS standard was developed in 2013–2014 by the Organization for Economic Cooperation and Development (OECD) and, like many other programs and developments of this organization, it was created to combat tax evasion.   CRS provides an annual automatic exchange of tax information between countries participating in the Multilateral Convention on Cooperation between the competent authorities on the automatic exchange of information (the ACIA convention).   As of October 2014, 51 countries have joined the ISAA convention, 83 countries have joined the July 2016, and in January 2018 Panama joined this convention, becoming the 98th country in the list. And this list continues to grow steadily. In September 2018, more than 100 countries exchanged data on the CRS standard. The first automatic exchange of data on the CRS standard between the countries parties to the Convention of the ISAA occurred in September 2017 (based on the results of 2016). And this process will take place annually in automatic mode. Automatic exchange: details The automatic exchange of tax information takes place only between the countries parties to the ISAA convention. Moreover, the «exchange» includes accounts of individuals, if the person is a tax resident of one of the countries parties to the ISAA Convention (such individuals are referred to as «accountable persons») and corporate accounts of companies whose beneficiaries (controllers) are «accountable persons» or companies In which 50% of income comes from passive operations. Within the ISAA member countries, information is exchanged on the accounts of non-residents of the country in which they have an active account or control a legal entity with a corporate account. Banking institutions, brokers, various investment funds, insurance companies, etc., operating in the ISAA member countries, collect and transmit financial information to the tax authority of their country. In turn, the tax authority of the participating country transfers the received information to the country of tax residence of the owner of such an account, but only if the given country is a party to the ISAA. If in the case of an individual, information will be transferred only to one possible country, then corporate information can be transferred both to the country of tax residence of the company and to the country of tax residence of its ultimate beneficiary (controller). Transmitted information For individuals. Personal Information. Last name, first name, registered address in the country of residence, tax number, date and place of birth. The financial part will contain information about the account number and the bank in which it is serviced, the currency of the account, the current balance, the amount received on the account for the reporting period, etc. For legal companies. Company name, registration address, tax number. Last name, first name, registered address in the country of residence, tax number, date and place of birth of the beneficiary’s individual (controller of the company). The financial part will contain information about the account number and the bank in which it is served, the currency of the account, current balance, information about revenue from active commercial activity and income from passive investment operations, etc. In particular, information on securities accounts, deposit accounts, etc. will be collected and transmitted. Information on corporate accounts that were opened before December 31, 2015 and whose annual balance did not exceed $ 250,000 or the equivalent of this amount is not subject to exchange. For a specific example, it looks like this: if you, being a tax resident of Ukraine, apply to the bank of an MSAA member country to open a personal account or a corporate account of a subsidiary company, then in the process of opening a bank employee will ask you to submit a relevant document for determining tax residency. As a rule, the overwhelming majority of Ukrainians, without having another document confirming tax residency, provide the taxpayer identification number in Ukraine. Further, the data provided are entered into the program complex of the bank with the note “tax resident of Ukraine” and annually, in automatic mode, personal and corporate accounts form and send a report to the local tax authority. Until Ukraine becomes an ISAA member country, this information will not be automatically transferred to the tax authority of Ukraine. There is no universal solution for resolving this state of affairs. Some of the clients will continue to prefer a waiting position, in the hope of a future easing of currency legislation and possible legalization of foreign assets with minimal losses, and for someone, changing or getting a second tax residence, or using an individual nominal service, will be a universal means. However, it can make it impossible to legalize the income of a real beneficiary. Another option would be to change the country serving the financial institution ... In any case, the world is moving towards financial transparency, and everyone will have to pay taxes, but the choice is up to the client – where and how much to pay.

Olexandr Bondarchuk

Managing partner of LA «Absolut»

The topic of automatic exchange of tax information on the CRS (Common Reporting Standart) standard is not new, because it has been repeatedly covered by the media and submitted for discussion at conferences and forums.

However, as the practice of communication with customers shows, unfortunately, many of people did not take the information properly or did not attach importance to the essence of this process.

In the case of Ukraine’s accession to a single standard for the exchange of tax information, many unprepared citizens risk getting uncomfortable questions from regulatory authorities or worse, losing relatively honestly acquired foreign exchange and valuable property abroad.

Begin

According to the Decree of the Cabinet of Ministers of Ukraine on the system of currency regulation and currency control, as well as the National’s Bank of Ukraine Instructions on the procedure for issuing individual licenses for making investments abroad, investing currency values ​​(including corporate rights) by Ukrainian citizens abroad, assume individual NBU license.

Some Ukrainians resorted to donation procedures and physically transferred funds outside Ukraine. Mitigation by the NBU in the approaches to the licensing of currency transactions of residents of Ukraine occurred only in 2017.

At first, the NBU allowed the citizens of Ukraine to place currency values ​​in foreign accounts of individuals, indicating the source of origin outside Ukraine, with mandatory declaration of these incomes and payment of taxes in accordance with Ukrainian legislation.

A little later, the NBU simplified obtaining an individual currency license, allowing individuals to citizens of Ukraine to obtain an electronic license under the simplified procedure through an authorized bank, limiting, nevertheless, the amount of investment to the equivalent of 50 thousand US dollars a year.

Consequently, everything that is on the personal or corporate accounts of the subsidiary companies abroad, without the appropriate permits and declaration in Ukraine, is not entirely legitimate, and the confidentiality of foreign accounts will lose relevance in the near future.

Then the tax inspectorate of the country of your tax residence will receive all the information automatically.

About CRS standard

CRS standard was developed in 2013–2014 by the Organization for Economic Cooperation and Development (OECD) and, like many other programs and developments of this organization, it was created to combat tax evasion.  

CRS provides an annual automatic exchange of tax information between countries participating in the Multilateral Convention on Cooperation between the competent authorities on the automatic exchange of information (the ACIA convention).  

As of October 2014, 51 countries have joined the ISAA convention, 83 countries have joined the July 2016, and in January 2018 Panama joined this convention, becoming the 98th country in the list. And this list continues to grow steadily.

In September 2018, more than 100 countries exchanged data on the CRS standard.

The first automatic exchange of data on the CRS standard between the countries parties to the Convention of the ISAA occurred in September 2017 (based on the results of 2016). And this process will take place annually in automatic mode.

Automatic exchange: details

The automatic exchange of tax information takes place only between the countries parties to the ISAA convention.

Moreover, the «exchange» includes accounts of individuals, if the person is a tax resident of one of the countries parties to the ISAA Convention (such individuals are referred to as «accountable persons») and corporate accounts of companies whose beneficiaries (controllers) are «accountable persons» or companies In which 50% of income comes from passive operations.

Within the ISAA member countries, information is exchanged on the accounts of non-residents of the country in which they have an active account or control a legal entity with a corporate account.

Banking institutions, brokers, various investment funds, insurance companies, etc., operating in the ISAA member countries, collect and transmit financial information to the tax authority of their country.

In turn, the tax authority of the participating country transfers the received information to the country of tax residence of the owner of such an account, but only if the given country is a party to the ISAA.

If in the case of an individual, information will be transferred only to one possible country, then corporate information can be transferred both to the country of tax residence of the company and to the country of tax residence of its ultimate beneficiary (controller).

Transmitted information

For individuals. Personal Information. Last name, first name, registered address in the country of residence, tax number, date and place of birth.

The financial part will contain information about the account number and the bank in which it is serviced, the currency of the account, the current balance, the amount received on the account for the reporting period, etc.

For legal companies. Company name, registration address, tax number. Last name, first name, registered address in the country of residence, tax number, date and place of birth of the beneficiary’s individual (controller of the company).

The financial part will contain information about the account number and the bank in which it is served, the currency of the account, current balance, information about revenue from active commercial activity and income from passive investment operations, etc.

In particular, information on securities accounts, deposit accounts, etc. will be collected and transmitted.

Information on corporate accounts that were opened before December 31, 2015 and whose annual balance did not exceed $ 250,000 or the equivalent of this amount is not subject to exchange.

For a specific example, it looks like this: if you, being a tax resident of Ukraine, apply to the bank of an MSAA member country to open a personal account or a corporate account of a subsidiary company, then in the process of opening a bank employee will ask you to submit a relevant document for determining tax residency.

As a rule, the overwhelming majority of Ukrainians, without having another document confirming tax residency, provide the taxpayer identification number in Ukraine.

Further, the data provided are entered into the program complex of the bank with the note “tax resident of Ukraine” and annually, in automatic mode, personal and corporate accounts form and send a report to the local tax authority.

Until Ukraine becomes an ISAA member country, this information will not be automatically transferred to the tax authority of Ukraine.

There is no universal solution for resolving this state of affairs. Some of the clients will continue to prefer a waiting position, in the hope of a future easing of currency legislation and possible legalization of foreign assets with minimal losses, and for someone, changing or getting a second tax residence, or using an individual nominal service, will be a universal means. However, it can make it impossible to legalize the income of a real beneficiary. Another option would be to change the country serving the financial institution …

In any case, the world is moving towards financial transparency, and everyone will have to pay taxes, but the choice is up to the client – where and how much to pay.

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