CRS Reporting – Preparing for Changes

With the signing of the CRS Multilateral Agreement by Ukraine and the introduction of the draft law No. 8131 to the Verkhovna Rada on October 17, 2022, the introduction of two international standards was launched in Ukraine: the Common Standard on Reporting and Due Diligence for Financial Account Information (CRS) and the standard on exchange of information on request (EOIR).

What is CRS?

CRS is a tool that defines the procedure for collecting financial information and its automatic exchange between jurisdictions – members of the mechanism.

This means that the tax authorities of country X will be able to find out about the accounts of its residents in financial institutions (e.g. banks, insurance, trusts) of country Y as part of the automatic exchange of information about such accounts.

The exchange under CRS is structurally simple – at first, financial institutions (banks, investment, insurance companies) will disclose to the fiscal authorities of their country (for example, Ireland) information about accounts of non-residents of Ireland and their details, the movement of funds on accounts. The Irish fiscal authorities will automatically exchange such information with their foreign counterparts (for example, Ukraine).

This mechanism is a win – win for both parties, because now to disclose the details of a foreign account of a citizen of country X, it will not have to make separate requests burdened with bureaucracy, detailed information about such an account will automatically come to the fiscal service of country X, and with such information – the ability to calculate tax debts and impose a fine.

CRS is a global initiative developed and endorsed by the Organisation for Economic Co-operation and Development (OECD) in 2014, currently supported by more than 110 jurisdictions (120 by 2024), including all EU countries.

• Information on 75 million financial accounts, with assets worth around €9 trillion
• 112 billion euros of additional revenue to the treasury in the form of taxes, interest, fines

The list of countries that have committed to implement the CRS standards includes those that are defined by the legislator as low-tax, in particular: Cyprus, Bahamas, Curacao, Maldives, Bermuda, Virgin Islands.

To see the list of CRS-countries that participate and will participate in CRS you can follow the link.

Who will be affected by the CRS requirements?

The CRS will affect both the accounts of individuals and legal entities. If you have an account in country X, such country is a member of the CRS, and you are a tax resident of country Y, then information about such account will be sent to country Y, or, in legal language, your account will become “reportable”.

After the adoption of the Law, the CRS rules will also become mandatory for Ukrainian financial agents when conducting due diligence on financial accounts.

Thus, if you already have an account in a CRS-country financial institution, you should be prepared to receive a letter with a request to determine your tax residency. You will receive the same letter when registering a new account in such a CRS country.

CRS is a step towards a global increase in tax transparency. Financial institutions in CRS jurisdictions will report to local authorities not only the fact of opening an account by a non-resident, but also the details of such account and other personal information of the account holder, for example:

• Name(s)
• Address of registration
• Taxpayer identification card number (or corresponding company registration number)
• Date and place of birth of the individual account holder or controlling person.
• Tax residency of the person (country/countries).
• Controlling persons of the legal entity (UBO)
• Account number, its balance for the reporting period (or at the time of closing the account).
• Gross income (including dividends, royalties, interest, etc.)

What are the terms of CRS implementation in Ukraine?

The exchange of account data is expected to start in September 2024.

It is planned to start due diligence of accounts under CRS as early as January 1, 2023, with the following deadlines:

• December 31, 2023 for high-value accounts (with a balance or value of more than $1 million as of December 31, 2022)
• December 31, 2024 for low value accounts (with a balance or value not exceeding USD 1 million as at 31 December 2022).

Nevertheless, the dates and terms of CRS implementation should be expected to be postponed to the period after the termination or lifting of martial law, as the Draft Law explicitly provides for such postponement.

How to prepare for the introduction of CRS for account holders in financial institutions?

If you have an account in a country other than your country of tax residence, you should pay attention to the following:

The financial institution where your account is opened will ask you to fill in a self-assessment document. In it, you must indicate the status of tax residency and a number of other details of the account, including those that relate to you personally.

If necessary, you will be asked to provide information on controlling persons (UBO) and, upon request, other information that the financial agent needs to verify your accounts.

You will provide this information only once. Exceptions – if your account details/tax residency status have changed, or the financial institution has rational doubts about such changes.

Thus, in Ukraine, by law, the account holder must notify the financial agent within ten business days of a change in their tax residency status for CRS purposes.

Tax residency and CRS

If you or your acquaintances are in emigration or temporary exile due to war or are abroad on a permanent basis, it is necessary to determine whether you have changed your tax residency status (and whether you are obliged to change it).

Usually, such status is determined by your citizenship, center of vital interests (business, family) or stay in the country for a certain period of time (most often – 183 days).

Currently, foreign tax authorities do not have access to information about the accounts of their residents in Ukraine, however, CRS will change this. Although the implementation of the CRS in Ukraine is legally postponed until the end of martial law, it is crucial to determine your tax strategy today, otherwise, you risk facing double taxation or additional tax debt and penalties.

Financial agents have a vital interest in the transparency of CRS reports, the Draft Law, among other things, introduced rules for monitoring financial agents to control the timeliness, completeness and accuracy of their CRS reporting under the threat of fines that can reach cosmic amounts, up to 1% of the revenue for the calendar year of the financial institution. We are talking about tens and hundreds of millions of hryvnias, taking into account such risks, CRS compliance will undoubtedly become a top priority for banks,

This level of transparency is new for Ukraine at least because now the disclosure of information about the Controlling Persons will be automatic and mandatory, closing a number of legal “gaps”, for example, in the declaration of CFCs. Thus, if an entrepreneur risks to face fines in Ukraine as a result of disclosure of information about controlling persons, it is worth considering a change in business strategy. Experienced lawyers will help you to realize a wide range of opportunities, in particular, change of tax residency, diversification of assets and much more.