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Participation of Ukraine in the international system of automatic exchange of tax and financial information (according to CRS standard)

In many open sources, including official ones, information on the inclusion of Ukraine from January 1, 2020 in the international system of automatic exchange of tax and financial information according to the Common Reporting Standard (CRS) has been repeatedly circulated during the years 2017-2018.  As a result of this step, according to sources, all information about foreign accounts of Ukrainian companies and citizens, as well as their foreign revenues received, will automatically transferred to SFS of Ukraine.

In support of the seriousness of intentions, on December 11, 2017, the Ministry of Finance presented to the public a Roadmap for the implementation of international standards of transparency and information exchange in the tax area "Tax transparency": EOIR / AEOI CRS” in Ukraine (https://www.minfin.gov.ua/news/view/minfin-rozrobyv-plan-dii-shchodo-vprovadzhennia-standartiv-prozorosti-ta-obminu-informatsiieiu-dlia-borotby-z-ukhylenniam-vid-splaty-podatkiv?category=dohidna-politika&subcategory=podatki), which details the stages of Ukraine's integration into this system.

Let's take a look - is it true or not, is it really from January 1, 2020, that Ukraine will receive tax and financial information from 100 countries that are actually exchanging such information by 2019? And what does this system of automatic exchange under the Standard CRS (Common Reporting Standard) represent?

As a matter of fact, the CRS (Common Reporting Standard) standard itself is a common reporting standard used in the Automatic Exchange of Information System (AEOI Standard).

The automatic exchange of financial information system was actually established in 2014.

Same as  the AEOI there is also the Standard of Exchange of Information on Request (EOIR Standard). This system was created earlier in 2002.

Two AEOI and EOIR standards complement each other, working together to increase the efficiency of efforts of tax authorities of different countries in addressing tax evasion issues.

In this publication, we will dwell in more detail on the Standard of Automatic Exchange of Financial Information (AEOI Standard).

The essence of the AEOI standard is that it requires that the financial institutions of a particular country provide information about accounts belonging to non-resident physical persons and legal entities (including trusts and funds) to their tax authorities. The tax authority then transfers such accumulated information to countries that are in the automatic exchange system. Of course, such information is transmitted directly to those countries whose residents are those who have such foreign accounts.

Although initially, the AEOI system was created under the slogan of fighting offshore (the OECD has emphasized the huge amount of money held in offshore areas and this allows taxpayers not to pay taxes to the extent that they have to do so by complying with tax obligations in their internal jurisdiction)because of the introduction of a system of automatic accounting of financial information has actually become the complete abolition of such a basis of the world financial system as a banking secret.

The standard defines the information on the financial account to be exchanged, the financial institutions to report, and the different types of accounts and taxpayers. The type of account information to be reported includes balances on accounts, interest, dividends, proceeds from sales and repurchase of financial assets.

 

History of CRS AEOI

As stated on the official website of the OECD (http://www.oecd.org/tax/automatic-exchange/common-reporting-standard/), the Joint Reporting Standard (CRS) for automatic exchange of financial information (AEOI), developed in response to a request G20 and endorsed by the OECD Council on July 15, 2014.

The OECD  (http://www.oecd.org/tax/transparency/automaticexchangeofinformation.htm) recognizes that the standard is very similar to the model that many jurisdictions use to enforce the US Foreign Information Tax Accounting Act (FATCA) 2010 law.

The OECD decision of July 15, 2014 was preceded by the following steps.

In 1988, the Convention on Mutual Administrative Assistance in Tax Matters was opened for signature (The Multilateral Convention on Mutual Administrative Assistance in Tax Matters,  – further  MCMAATM).

In 1992, the Model Tax Convention (OECD Model Tax Convention) was published, Article 26 of which was devoted to the exchange of information.

In the early 2000s, the Global Forum for Transparency and Information Exchange for Taxation was created. Within the framework of the Global Forum, which has united in a multilateral format both OECD countries and non-OECD countries, active work has begun to further develop European legislation on transparency and the exchange of information for tax purposes and monitoring compliance with it. The Global Forum has become a key international body working on the implementation of international tax transparency standards.

The key features of the EOIR standard are reflected in the OECD Model Agreement on Tax Information Exchange of 2002.

In 2014, a Multilateral Agreement was signed (some sources refer to this agreement by convention) of the competent authorities on automatic exchange of financial information (Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information - CRS MCAA) which in fact became the basic document in the direction of international cooperation on the automatic exchange of financial information.

In 2018, the use of the new global standard for AEOI significantly expanded, with 100 governments exchanging information on non-resident financial accounts (http://www.oecd.org/tax/transparency/global-forum-annual-report-2018.pdf).

 

Normative Ground for CRS AEOI

Thus, the legal framework for CRS AEOI is the following international legal acts:

 

When the CRS comes to Ukraine

Ambitious plans of Ukraine  to start the exchange within the framework of the AEOI in 2020 are declared.

If they be implemented?

In fact, for the introduction of CRS Ukraine had to take the following steps:

Step 1: Accession to the Convention on Mutual Administrative Assistance in Tax Disputes of 1998 and the ratification of this Convention for the purpose of implementation in national legislation.
Step 2: Accession to the Multilateral Convention on Co-operation between the competent authorities for the automatic exchange of information under the CRS standard (based on Article 6 of the MCMAATM Convention).
Step 3: Create a technical base to participate in the automatic exchange of information.

 

Schedule Status:

Step 1: Finished.
On December 17, 2008, the Verkhovna Rada ratified the Convention on Mutual Administrative Assistance in Tax Matters MCMAATM (Law of Ukraine No. 1027 "On Ratification of the Convention on Mutual Administrative Assistance in Tax Matters"), to which Ukraine acceded on December 20, 2004.

Step 2: This step is in progress.
Ukraine is a member of the Global Forum since 2013.
To sign the CRS MCAA, it is necessary beforehand to prepare and adopt a national legal framework that will allow for the practical realization of the automatic exchange of information under the CRS standard.
At one time, the Ministry of Finance of Ukraine in the manual "Tax Transparency: EOIR / AEOI CRS. Implementation Guide "noted:
"The accountable financial institutions should be guided by a legal requirement that would oblige them to initiate the process of Due diligence, so the laws as such should take effect in time.
Thus, the priority task is to prepare legislation to implement the AEOI standard. Therefore, the priority task is to prepare accountable financial institutions to be guided by a legal requirement that obliges them to initiate the process of dividends, therefore the laws as such should come into force by January 1, 2019, in order to comply with the plan according to which the exchange within the framework of the AEOI will begin in 2020. ".
Among the already adopted legislative acts in this plane, it is possible to distinguish:
The Law of Ukraine "On Currency and Currency Operations" dated June 21, 2018 https://zakon.rada.gov.ua/laws/show/2473-19.
The Law of Ukraine "On Amendments to the Tax Code of Ukraine and Certain Other Legislative Acts of Ukraine on Improving the Administration and Revision of the Rates of Individual Taxes and Duties" was adopted on November 23, 2013 https://zakon.rada.gov.ua/laws/show/2628- 19
But this is not enough.
A number of parliamentary bills on the settlement of issues of international exchange of information in the Tax Code of Ukraine was submitted for consideration to the Verkhovna Rada of Ukraine, but has not been considered before, for example, the bill number 6503,
In August 2018 under the Ministry of Finance of Ukraine was created a working group on the implementation of the plan to counter strategies and practices for the dilution of the tax base and the elimination of the profits from taxation (BEPS Action Plan) https://www.ukrinform.ua/rubric-economy/2523578- pri-minfini-stvorat-group-z-pitan-protidii-zlovzivannam-v-opodatkuvanni.html.
One of the tasks of the group, the ministry defined the drafting of bills that will be regulated, including the issue of the introduction of international standards for the automatic exchange of information.
According to the results of  work of the Ministry of Finance in October 2018 was promulgated a bill "On Amendments to the Tax Code of Ukraine for the Implementation of the Plan of counteraction the dilution of tax base and deduction of income from taxation”
Since October the bill is on discussion and not submitted to the Verkhovna Rada of Ukraine.
Namely, as of March 2019, it can be argued the plans of the Ministry of Finance of Ukraine for  the adoption of a legislative framework for the automatic exchange of tax and financial information by January 1, 2019 has not been implemented.
This is also confirmed by the information posted in November 2018 on the official OECD website https://www.oecd.org/tax/transparency/AEOI-commitments.pdf.
The OECD has published a document entitled "AEOI: Status of commitments".
According to this document, Ukraine is included in the list of countries that have not set the date for participation in the system of automatic exchange.

Step 3: An open question.
There is no exhaustive list of technical parameters to be met by public authorities to ensure participation in the exchange of information.
The main requirements are the proper level of information security management, confidentiality and the introduction of the necessary information technology and administrative systems. The information-technological and administrative systems mean, in particular, the functionality of the reporting system of financial institutions, the system of effective use of the received tax and financial information.
There are no positive signals from the competent state bodies of Ukraine on the establishment of appropriate technical information security and privacy management systems yet, as the existing reporting system of financial institutions meets the requirements of the AEOI is also an open question.
The willingness of these systems to exchange in the AEOI system should in any case be further confirmed by the Global Forum through evaluation. The timing of such an evaluation is currently uncertain.

Thus today, the date of the beginning of Ukraine's participation in the system of automatic exchange of financial information (AEOI Standard) is open due to the following:

  • Ukraine did not complete the list of measures for the signing of the CRS MCAA, in particular, the relevant legislation was not adopted;
  • date of signing of CRS MCAA by Ukraine is not defined;
  • The technical basis necessary for Ukraine's participation of automatic exchange is only beginning to take hape.
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