Ukraine signs international agreement to enable automatic exchange of bank account information

26/ 08/ 2022

On 19 August 2022, the State Tax Service of Ukraine signed the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (“MCAA CRS”). The document establishes an international framework for the automatic exchange of financial account information, known among the tax advisors and bankers as the CRS. Its signing is yet another (although not final) step towards the long-awaited implementation of the CRS in Ukraine. What is CRS? CRS, or Common Reporting Standard, suggests that a financial institution in one country (for example, a Swiss bank) which maintains an account for a tax resident of another country (for example, for a Ukrainian individual) collects information about the account holder and share this information with the tax office in its own country (Switzerland in the example). The Swiss tax office will then share this information with the Ukrainian tax authority on an annual basis. Such exchange is called automatic because Ukraine (in this example) will not be required to make any request to obtain this information. The only condition is that there is an appropriate agreement between Ukraine and relevant jurisdiction. More than a hundred countries have joined the CRS since its emergence in 2017. In other words, if you are a Ukrainian resident having a foreign bank account, your bank has likely collected all the necessary information about you already (and perhaps continues doing so regularly). However, it has likely not shared this information with its tax office yet because Ukraine is not a part of the CRS and no country has the appropriate agreement with Ukraine. That is going to change soon. Other participants of the MCAA CRS include, for example, Cyprus, Liechtenstein, Malta, Switzerland, the United Kingdom, etc. With eventual implementation of the CRS, Ukraine gets the chance to obtain the information about its residents offshore bank accounts from the Cypriot, Swiss, English and many other banks over the world. Importantly, not only the individual accounts will be reportable, but also (in certain cases) the accounts of companies, trusts, foundations where Ukrainian residents are involved as UBOs, settlors, beneficiaries or likewise. The upcoming automatic exchange means that the tax authorities are getting a quite powerful tool to identify more data about foreign assets of the Ukrainians. Complementing the controlled foreign companies rules and recent tax amnesty/voluntary disclosure program, the automatic exchange of information is another important ingredient in the Ukrainian recipe of tackling the offshore tax avoidance and aggressive tax planning. Next steps The only thing left on the part of legal framework to implement the CRS in Ukraine is domestic legislation. The Ministry of Finance has already developed a relevant bill which awaits approval of other interested government agencies and will soon be submitted for parliamentary consideration. It is expected to be adopted by the Parliament by the end of November this year. After that, the Ministry of Finance and the tax authorities will have to adopt a bunch of secondary legislation. According to the roadmap presented by the Ministry of Finance, the CRS reporting will be launched during 2023, which will be the first reporting year. However, the dates of launch may be postponed considering the state of martial law in Ukraine. For further information regarding the automatic exchange and its potential impact on your tax affairs, please contact Asters Tax and Private Clients Partner Constantin Solyar and Senior Associate Yurii Dmytrenko.

What is CRS?

CRS, or Common Reporting Standard, suggests that a financial institution in one country (for example, a Swiss bank) which maintains an account for a tax resident of another country (for example, for a Ukrainian individual) collects information about the account holder and share this information with the tax office in its own country (Switzerland in the example). The Swiss tax office will then share this information with the Ukrainian tax authority on an annual basis. Such exchange is called “automatic” because Ukraine (in this example) will not be required to make any request to obtain this information. The only condition is that there is an appropriate agreement between Ukraine and relevant jurisdiction.

More than a hundred countries have joined the CRS since its emergence in 2017. In other words, if you are a Ukrainian resident having a foreign bank account, your bank has likely collected all the necessary information about you already (and perhaps continues doing so regularly). However, it has likely not shared this information with its tax office yet because Ukraine is not a part of the CRS and no country has the appropriate agreement with Ukraine. That is going to change soon.

Other participants of the MCAA CRS include, for example, Cyprus, Liechtenstein, Malta, Switzerland, the United Kingdom, etc. With eventual implementation of the CRS, Ukraine gets the chance to obtain the information about its residents’ offshore bank accounts from the Cypriot, Swiss, English and many other banks over the world. Importantly, not only the individual accounts will be “reportable”, but also (in certain cases) the accounts of companies, trusts, foundations where Ukrainian residents are involved as UBOs, settlors, beneficiaries or likewise.

The upcoming automatic exchange means that the tax authorities are getting a quite powerful tool to identify more data about foreign assets of the Ukrainians. Complementing the controlled foreign companies’ rules and recent tax amnesty/voluntary disclosure program, the automatic exchange of information is another important ingredient in the Ukrainian recipe of tackling the offshore tax avoidance and aggressive tax planning.

Next steps

The only thing left on the part of legal framework to implement the CRS in Ukraine is domestic legislation. The Ministry of Finance has already developed a relevant bill which awaits approval of other interested government agencies and will soon be submitted for parliamentary consideration. It is expected to be adopted by the Parliament by the end of November this year. After that, the Ministry of Finance and the tax authorities will have to adopt a bunch of secondary legislation. According to the roadmap presented by the Ministry of Finance, the CRS reporting will be launched during 2023, which will be the first reporting year. However, the dates of launch may be postponed considering the state of martial law in Ukraine.

For further information regarding the automatic exchange and its potential impact on your tax affairs, please contact Asters’ Tax and Private Clients Partner Constantin Solyar and Senior Associate Yurii Dmytrenko.