AUTOMATIC EXCHANGE OF TAX INFORMATION BUSINESS TRANSPARENCY

You have probably heard what the Common Reporting Standard (CRS) is, but I would like to remind you once again that this is a single reporting standard that implies the automatic exchange of tax information between countries.

The purpose of the Common Reporting Standard (CRS) is to reveal the real owners of the business, increase the transparency of cash flows, and as a result, minimize the opportunities for tax evasion and prevent aggressive tax policies.

Ukraine plans to sign an agreement on joining the CRS before the end of 2018, and the first transfer of tax information is planned in 2020 (based on the results of 2019). Therefore, the Ukrainian business does not have much time left to bring the structure of its business in line with the new standards.

A bit of history

In fact, the very idea of CRS was borrowed from the United States of America. It was there that they began to introduce a global system aimed at combating tax evasion by American citizens. To this end, back in 2010, the US adopted the Foreign Account Tax Compliance Act (FATKA). The essence of the law was that all financial institutions in the world had to transfer to the competent US authorities information about the accounts of American citizens opened with them. This law turned out to be unique for two reasons - firstly, its effectiveness exceeded all expectations, and secondly, this is almost the only case when a national normative act becomes mandatory for other countries.

The Organization for Economic Cooperation and Development (OSED) has long been developing mechanisms to prevent tax base erosion and the use of aggressive tax policies. The result of this work was the emergence of Base erosion and Profit Shifting (an action plan to prevent the erosion of the taxable base and the removal of profits from taxation), the so-called BEPS Plan.

Ukraine, among other countries, joined the BEPS Plan on January 1, 2017 and committed itself to fulfill its minimum of four points.

In the future, the OECD, inspired by the positive results of the FATKA application, developed its own global mechanism to combat tax evasion by controlling the movement of cash flows in the context of their real owners, which will be implemented through the automatic exchange of tax information between countries, which was called - Common Reporting Standard (CRS).

In general terms, the work of CRS will look like this:

In relation to customer accounts (legal/individuals) that are subject to the requirements for automatic exchange of information, banks and other financial institutions collect information and transfer it to the fiscal authorities of their country, and they, in turn, transfer this information to the fiscal authorities, of which he is a resident the client is an individual and/or the beneficial owner of a legal entity.

Who will disclose information under the CRS standard:

For whom information will be disclosed under the CRS standard:

• most of the accounts of individuals;
• accounts of legal entities (subject to certain conditions);
• newly opened accounts and those accounts that were opened on the start date of the CRS (there are some exceptions).

What information will be disclosed under the CRS standard (Section II Exchange of Information with Respect to Reportable Accounts):

• information about the person who controls the reporting account: full name / company name, residential address / company registration address, tax resident status, individual tax number, reporting account number, information about the financial institution in which the account is opened, account balance and currency, etc.
• balances of financial accounts located in the jurisdiction of partners, Ukrainian tax residents and passive non-financial organizations that are controlled by Ukrainian tax residents;
• specific types of income paid or credited to these accounts, including interest income, dividends, income from certain insurance products and gross proceeds from the sale or redemption of financial assets.

The term for the provision (exchange) of information is within 9 months after the end of the calendar year to which this information relates (Section III Time and Manner of Exchange of Information).

ARE YOU NOT READY YET? – CONSEQUENCES AND SANCTIONS

Until now, the relative anonymity and confidentiality of the real business owners and their income has been maintained. But after the accession of Ukraine to the CRS, everything will change dramatically. Accession of Ukraine to the CRS means that the Ukrainian fiscal authorities will receive the information specified in Section II of the Exchange of Information with Respect to Reportable Accounts.

ADMINISTRATIVE RESPONSIBILITY

The Decree of the Cabinet of Ministers of Ukraine “On the system of currency regulation and currency control” provides for responsibility for:

• illegal use of currency values - administrative or criminal liability;
• carrying out operations with currency values that require obtaining a license, without obtaining a license - a fine in an amount equivalent to the amount of these currency values;
• late submission, concealment or distortion of reports on foreign exchange transactions - a fine in the amount established by the NBU;
• failure to comply with the requirements for declaring currency values and other property - a fine in the amount established by the NBU.

CRIMINAL LIABILITY

It is possible that as a result of Ukraine joining the CRS, a new round of criminal cases will appear that will qualify as tax evasion and legalization of proceeds from crime (Articles 212, 209, 2091 of the Criminal Code of Ukraine).

For 2018 (living wage for one able-bodied person UAH 1762)

WE ARE FREQUENTLY ASKED

1. Does Ukraine automatically exchange tax information with other countries, and if so, with which ones?

   Today, Ukraine does not automatically exchange tax information with other countries. However, it is planned to sign this agreement before the end of 2018, and already in 2020 the first exchange of information for 2019 is planned. Agree that there is not much time left to carry out a complete and most importantly competent business restructuring.

2. What violations can be detected by the fiscal authorities in the automatic exchange of tax information?

The tax information received during the automatic exchange will be sufficient for the tax authorities to identify and state the fact:

• not declaring income received abroad (and as a result, tax evasion);
• placement of currency on personal accounts abroad without obtaining a license from the NBU;
• violations of the procedure for investing abroad, etc.

Thus, the global unification of tax legislation, the introduction of automatic exchange of tax information and the accession of more and more countries to these trends are pushing businesses to rethink and restructure business models.

Based on the types of activities you have chosen and the existing business model, our company is ready to offer you solutions that will help you conduct your business with confidence using foreign companies.