THE CONCEPT OF CRS AND ITS LEGAL CONSEQUENCES

As of today, Ukraine is on the path toward joining various international agreements, which requires amendments to sector-specific national legislation.

The area of finance and taxation is no exception. In order to join the international system of information exchange under the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information, the Verkhovna Rada of Ukraine adopted the Law “On Amendments to the Tax Code of Ukraine Regarding the Implementation of the International Standard for Automatic Exchange of Financial Account Information” (hereinafter — the “Law”), which is currently awaiting the President’s signature.

So, what is the “international standard for automatic exchange of financial account information (CRS)” and what legal consequences follow from its implementation into national legislation?

CRS is an international standard adopted by the Council of the Organisation for Economic Co-operation and Development (OECD), which requires countries implementing it to collect financial account information from financial institutions and automatically exchange such information annually with partner jurisdictions.

Implementation of CRS entails the following legal consequences:

– establishing an obligation for financial institutions to conduct due diligence of financial accounts;

– introducing new terminology into national legislation and requiring the use of CRS Commentary when interpreted by financial institutions and tax authorities;

– creating an effective control system to ensure that financial institutions identify reportable accounts and submit reports accordingly;

– obligating Ukrainian tax residents that belong to a multinational enterprise group to submit a country-by-country report to the State Tax Service for the relevant financial year;

– granting the State Tax Service access to information about the foreign financial assets of Ukrainian residents;

– collecting information on the ownership structure and ultimate beneficial owners (UBOs) of foreign companies that have permanent establishments or a place of effective management in Ukraine;

– collecting information on partners and UBOs of foreign partnerships that conduct activities or receive income taxable in Ukraine;

– collecting information on trusts managed or administered by Ukrainian residents;

– requiring legal entities to store primary accounting documents and financial statements for at least five years after the reporting period ends or the company is liquidated;

– introducing a differentiated system of financial (penalty) sanctions for financial agents, with liability tailored to the severity of the violation;

– establishing penalties for account holders for providing false information to financial agents, including if the account holders are residents of other countries and are not registered with the Ukrainian tax authorities.

12.04.2023