More and more countriesin the world are tightening their legislation to combat tax evasion and financial crimes. Many member countries of the Organisation for Economic Co-operation and Development (OECD) are developing new mechanisms for controlling financial transparency. One such tool is the Common Reporting Standard (CRS). In this article, we will examine the key aspects of CRS and its impact on Ukraine.
What is the Common Reporting Standard (CRS)?
Before discussing CRS, it is important to understand what the term means. The Common Reporting Standard (CRS) was developed by the OECD in 2014 as a universal standard for the automatic exchange of information about financial accounts between OECD member countries. The primary goal is to prevent tax evasion through offshore accounts and hidden financial assets. This is achieved through the mandatory collection and sharing of data on financial accounts of residents of one country opened in other countries.
Key elements of CRS include:
– Financial Institutions’ Obligations: Banks, insurance companies, investment funds, and other financial institutions must collect information about their clients, including their tax residency status.
– Financial Account Reporting: Financial institutions are required to annually submit the collected data to their national tax authorities.
– Information Exchange Between Countries: Tax authorities of CRS participant countries exchange information on the financial assets of their residents located in other countries.
What Role Does CRS Play for Ukraine?
For a long time, Ukraine has struggled with tax evasion and capital outflow, which is why it joined CRS to enhance financial transparency and increase tax revenues. Additionally, Ukraine’s participation in CRS helps harmonize its legislation with international standards and further integrate the country into the global financial system.
The first exchange of information within CRS is scheduled for September 2024. This exchange will be a significant milestone for Ukraine. After that, Ukraine will be able to receive data about the financial accounts of its residents from more than 100 countries worldwide, including the European Union, the USA, Canada, Japan, Australia, and many others.
What Information Will Be Exchanged Under CRS?
According to the Law on Amendments to the Tax Code of Ukraine No. 2970-IX, within CRS, financial institutions will transfer the following information to foreign tax authorities:
– Personal Data: The account holder’s name, address, date of birth, and Tax Identification Number (TIN).
– Financial Account Data: The account number and balance at the end of the reporting year.
– Financial Transactions: Information on income received from the account, including interest, dividends, and proceeds from the sale of financial assets.
This information is sent to the tax authorities of the CRS participating country, which, in turn, share this data with the tax authorities of another country where the resident has tax obligations. It is important to note that CRS covers not only bank accounts but also other financial instruments such as insurance policies, trusts, pension funds, and similar assets.
These data will allow Ukrainian tax authorities to detect and monitor hidden incomes that were not declared in the country.
First CRS Exchange: Challenges and Opportunities for Ukraine
As mentioned earlier, Ukraine will carry out its first information exchange in September 2024. During this exchange, Ukrainian tax authorities will receive data from partner countries about the financial assets of Ukrainian residents abroad. This process will not only increase transparency but also serve as an essential tool in the fight against money laundering, terrorism financing, and other financial crimes.
Of course, the implementation of this mechanism offers significant benefits for the state but presents challenges for individuals and businesses. These challenges include concerns about data security, the readiness of financial institutions for reporting, and potential consequences for taxpayers who have not yet legalized their assets before the start of the information exchange.
For more information about the Common Reporting Standard (CRS), refer to the following official sources:
– https://mof.gov.ua/uk/crs-578
– https://zakon.rada.gov.ua/laws/show/2970-20#Text
– https://www.oecd.org/tax/automatic-exchange/common-reporting-standard
Bank vs. Client
In accordance with the obligations under the Multilateral Competent Authority Agreement (MCAA) on CRS, Ukrainian banks must conduct proper due diligence when establishing business relationships/opening accounts and when updating client data. They must carry out checks for:
– Clients (individuals/entrepreneurs/legal entities (organizations));
– Ultimate beneficial owners of the client.
The following indicators may suggest that financial accounts are subject to reporting under CRS:
– The client’s residency as an individual or entrepreneur differs from that of Ukraine or the USA.
– The client’s citizenship differs from that of Ukraine or the USA.
– The client’s place of residence differs from that of Ukraine or the USA.
– The ultimate beneficiary of a legal entity client has residency/citizenship/place of residence different from that of Ukraine or the USA.
– The client is a legal entity registered in a jurisdiction other than Ukraine or the USA.
– The client pays or is required to pay taxes in a jurisdiction other than Ukraine or the USA.
The bank must obtain information regarding its clients’ residency. Therefore, when establishing a business relationship with the bank (e.g., opening accounts), updating identification data, or upon the bank’s request, you will be asked to complete a CRS self-assessment form.
Conclusion
The Common Reporting Standard (CRS) represents a significant step for Ukraine in ensuring financial transparency and combating tax crimes on a global level. Ukraine’s participation in CRS opens up new opportunities for enhancing control over citizens’ incomes and increasing tax revenues. However, the successful implementation of this process will require considerable efforts and preparation from both the state and businesses.