CRS, or when will the tax office receive information about balances on foreign accounts?

Who is obliged to collect tax information?

Entities obliged to collect tax information include:

• Banks
• Insurance companies
• Investment companies

According to the CRS standard, these financial institutions are tasked with verifying their clients’ financial accounts and passing the information about these accounts to the tax authorities.

Who is covered by the exchange rules?

The essence of the automatic exchange of tax information lies in the fact that data regarding foreign accounts of Ukrainian tax residents (both individuals and legal entities) will automatically be provided to the Ukrainian tax authorities. Conversely, financial institutions in Ukraine will gather information about non-resident accounts, and the Ukrainian tax authorities will then transfer this information to the countries of tax residency of the account holders.

The main criterion for the exchange of tax information is the person’s place of residence, not their citizenship (for individuals). This is the key factor in determining where the collected information should be sent next.

Therefore, if a Ukrainian citizen conducts their activities solely in Ukraine and opens an account in a Ukrainian bank, the data about their account will not be transferred anywhere else.

However, if a bank in Ukraine becomes aware that its client is also a tax resident of another country, it will be obligated to report such an account under the CRS standard, and the country of tax residency may learn about the accounts in Ukraine. Similarly, with a hypothetical example involving France, tax authorities of a country will not transfer information about their citizens’ accounts until they become tax residents of another country, at which point the exchange will be conducted in accordance with the CRS standard.

What criteria will be used to search for account holders and further exchange of information

Under the Common Reporting Standard (CRS), individuals are required to provide financial institutions with a self-certification document, commonly known as a self-identification questionnaire. This means the individual determines their country of residence. According to Section 1 of the CRS, the document must mandatorily include the account holder’s name, address, jurisdiction(s) of residence, tax identification number (TIN), and date and place of birth. This form can be adapted to the internal procedures of the financial institution.

Additionally, financial institutions can consider other information about the person, such as their residential address, telephone number, or the movement of funds to a specific country. If a financial institution identifies signs indicating residence in a particular country, it can forward the person’s data to that country.

The information that will be collected and transmitted includes:

Personal details of the account holder (full name, address, telephone number, etc.).
Financial institutions where the accounts are opened and the balance on these accounts.
The country where the account was opened.
It’s important to note that details about the amount of each transaction and the movement of funds in the account will not be transmitted under the CRS standard.

The collection of tax information began on July 1, 2023, and concluded on December 31, 2023, with the first exchange set to occur at the end of 2024. This applies to accounts opened both before and after July 1, 2023. The agreement operates on a mutual basis: Ukraine will provide the information it collects, and in return, it will receive corresponding information.

However, Ukraine will not be able to receive information about the accounts of Ukrainians abroad before July 1, 2023.

Cases when information is not considered tax information

In the Transitional Provisions of the Tax Code of Ukraine, it is stipulated that if martial law is in effect as of December 31 of the financial year, then funds held by Ukrainian citizens abroad that amount to less than 250,000 US dollars are not considered tax information and cannot be used for tax assessment purposes. This provision provides a specific exemption under such circumstances, recognizing the potential need for citizens to maintain financial resources abroad during periods of national emergency, such as during martial law.

Consequences of exchange of tax information

The consequences of exchanging tax information have led to amendments in the Tax Code of Ukraine, specifically in paragraph 44.3 of Article 44, which significantly extends the retention period of documents. The standard retention period for primary documents, accounting registers, financial statements, and other tax-related documents has been increased from 1,095 days (3 years) to 1,825 days (5 years). This applies regardless of whether the accounts are subject to automatic information exchange.

Financial institutions bear the primary burden of complying with the CRS requirements. The Tax Code of Ukraine imposes significant penalties for CRS compliance violations, including:

• Violation of reporting requirements for automatic exchange of information.
• Failure to report or delayed reporting of reportable accounts.
• Financial agents submitting reports on reportable accounts with incomplete, inaccurate information, or errors.
• Violation of requirements regarding the retention periods for documents and information related to financial accounts.

For example, a financial institution that fails to timely submit reports on reportable accounts to the tax authority is subject to a fine of 0.5 times the minimum wage for each calendar day of delayed submission, which in 2024 amounts to 3,550 UAH per day.

Individuals are also held accountable for deliberately providing self-certification CRS documents with false information, which leads to the non-identification of an account as reportable. Specifically, if a person intentionally provides a bank with false information about their country of residence, they can be fined 100 times the minimum wage, which in 2024 amounts to 710,000 UAH.

These measures reflect the seriousness with which Ukraine is approaching the CRS and its commitment to ensuring compliance and transparency in financial dealings.

How to prepare for the automatic exchange of tax information?

• check all foreign accounts
• collect and keep all documents that confirm the origin of funds in foreign accounts of financial institutions, for example, evidence of transactions.
• get a certificate of income and check actual income based on it.
• analyze the documents provided to the financial institution to confirm tax residency.
• if necessary, for example, when changing the place of residence, change or update documents in case of changes in the status of tax residency – notify the financial institution

Conclusion

In the context of Ukraine’s accession to the CRS standard, it is essential for Ukrainian companies that have financial accounts abroad to monitor and comply with the established rules carefully. We recommend that you regularly check and update information about your tax status and ensure the accuracy of the information provided to financial institutions. Contacting qualified professionals will help ensure compliance with all CRS requirements and avoid possible fines for violating the standard. This will protect you from financial and legal risks and increase transparency and responsibility in international economic relations.