Implementation of the Common Reporting Standard in Ukraine and Automatic Exchange of Information with Switzerland

The main aim of the CRS is to create a facilitated access to such information by competent authorities in order to effectively identify undeclared income of tax residents outside their resident countries and control over the correctness of income declaration and tax payments. CRS encourages participating countries to obtain information from their financial institutions and automatically exchange it with other countries on an annual basis. It defines the financial account information that must be exchanged, the reporting financial institutions, and describes the general review procedures that financial institutions must follow.

The automatic exchange of information ("AEOI") introduced by the OECD as part of the CRS is an international standard that governs how tax authorities in the participating countries exchange data relating to taxpayer's accounts. The AEOI has changed the tax landscape. As of January 2023, more than 110 jurisdictions participate in the international multilateral automatic exchange of financial account information, including all European Union member states.

CRS Legislation in Ukraine

In general, CRS is implemented in the legislation of participating countries based on international agreements and domestic regulations.

Ukraine joined the Common Reporting Standards multilateral agreement ("CRS agreement") on August 19, 2022. The implementation procedure also required changes to the Tax Code of Ukraine. Such changes entered into force on April 28, 2023. It is stipulated that the first reporting period in Ukraine begins on July 1, 2023 and ends on December 31, 2023. However, the Ukrainian tax authorities will be able to receive such information for the entire year 2023. Ukrainian financial institutions are required to report information on their reporting accounts to the Ukrainian tax authorities by 1 July of each year. The Ukrainian tax authorities will exchange information with other partner states within nine months after the end of the reporting year (i.e., by 30 September of each year). The first information exchange is scheduled for September 2024.

Under the implemented provisions, Ukrainian banks are obliged to collect information on foreign tax residents' accounts in Ukraine and forward it to the Ukrainian tax authorities, which in turn forward this information to the tax authorities of the respective countries in which the taxpayer is tax resident. Ukrainian tax authorities will also receive such information about Ukrainian taxpayers from the tax authorities of the participating countries that are parties to the relevant international agreement.

Information subject to automatic exchange

The following information will be subject to automatic exchange:

• Name/corporate name of the account holder
• Date of birth, address
• Tax number
• Bank account number
• Balance at the end of the year
• Total income from financial assets for the reporting period

AEOI will affect a large number of individual accounts, as it does not set minimum thresholds for them and applies to any investor or account holder who is a tax resident of a participating jurisdiction.

The new provisions of the Ukrainian Tax Code provide for penalties for violations of the CRS standard which may also be imposed on account holders (e.g., for deliberate submission of documents with false information). It also stipulates a special procedure for the Ukrainian tax authorities to send a tax notice directly to a non-resident. However, it is not yet clear how this procedure should work.

With the introduction of the AEOI, the Ukrainian tax authorities will receive detailed financial information on accounts of Ukrainian residents opened in foreign financial institutions, including information about Ukrainian beneficiaries (controllers) of foreign companies and their accounts.

Automatic Exchange of Information with Switzerland

The legal framework required for the introduction of the AEOI in Switzerland entered into force on January 1, 2017. In order to implement the AEOI with the individual partner countries and territories bilateral activation in accordance with the OECD's Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information ("MCAA" or "AEOI agreement") or a specific bilateral treaty is required.

For the introduction of the AEOI with new partner countries in Switzerland, a country-specific federal resolution must be approved by Swiss parliament and the new partner should meet the requirements of the global standard - including the requirements in the area of data protection issued on the basis of the declarations made by the partner states under the AEOI agreement - at the latest before the first exchange of information on financial accounts, which will be verified as part of the control mechanism for the standard-compliant implementation of the AEOI.

The Swiss parliament approved the Resolution of the Federal Council on the Introduction of the Automatic Exchange of Information on financial accounts with Ukraine. It was planned that the first automatic information exchange should generally take place from 2024, provided Ukraine meets the requirements of the AEOI standard. However, the legal, administrative, and technical framework for confidentiality and data security in Ukraine has not yet been reviewed by the international competent authority, the Global Forum Expert Panel.

As long as Russia's military aggression against Ukraine continues, it will not be possible to verify whether Ukraine meets the requirements for effective implementation of the AEOI. Nevertheless, the Swiss Federal Department of Finance supports the continuation of the preparatory process on the Swiss side and is continuously reviewing the situation in order to be able to introduce the AEOI when the situation allows it. The Swiss Federal Council should notify the Secretariat of the AEOI Coordination Body about the date as of which information will be automatically exchanged with Ukraine.

Recommendation

The legal basis for the AEOI between Ukraine and Switzerland has already been established. It is only a matter of time before automatic exchange of information between the two countries begins. Given the complexity of the procedure and the intricacies of its application, taxpayers should now assess the impact of the AEOI on their business and personal interests and prepare for the first exchange of information between the two countries.