On automatic exchange of financial information

Signing of an agreement on automatic exchange of financial information MCAA

Lawyer from Tranio, Ekaterina Shabalina, talks about Russia's signing of the MCAA agreement on automatic exchange of financial information in May 2016. This agreement requires financial institutions to provide information about non-resident accounts to local tax authorities, which in turn reduces the likelihood of tax evasion.

Increase in the number of citizens notifying tax authorities about foreign accounts

According to a study by Tranio and Adam Smith Conferences, the number of wealthy Russian citizens who reported their foreign accounts to tax authorities has significantly increased from 10% to 40%. More than 100 countries around the world have already joined this agreement, which ensures effective information exchange between tax authorities.

Choosing jurisdictions for capital withdrawal

The results of the survey also showed that Russians transferring capital to countries that do not Singapore, the US and other popular jurisdictions are the most common choices. The determination of non-resident status will be based on various factors, such as place of residence, address for receiving mail, IP address, and frequency of overseas remittances.

Overall, the international agreement on automatic exchange of financial information enhances the transparency and integrity of financial operations, as well as helps to prevent tax violations.

What types of accounts will be included in the information exchange process?

Data on personal accounts of individuals who are tax residents of participating countries, known as "controlled persons," will be transmitted, as well as information about corporate accounts of companies, funds, and trusts managed by one or more controlled persons directly or through a passive non-financial entity (NFE). An NFE is a business structure where more than half of the income is generated from passive sources such as real estate, dividends, royalties, and others. However, low-risk accounts, such as pension, insurance, deposit accounts, and accounts of legal entities opened before a certain date and with limited balances, are exempt from mandatory information reporting.

What will the information for tax services contain?

For each controlled account, the following information will be collected: details of the controlling person.Full name, date and place of birth, residential address, tax residence, TIN),account numberor other identifier (if available), financial information (currency, account balance, income from commercial and investment activities) and information about the financial institution where the account is opened. Thus, tax authorities will receive information about residents' foreign assets based on transactions in their accounts.

Where will this information be directed?

Account data for an active foreign company (where passive source income is less than 50% of total income) will be transmitted only to the country where the company is resident. of total income) will only be transmitted to the country where the company is resident. Information on account of a passive company will be transmitted both to its country of residence and to the countries where its beneficiaries are registered. its beneficiaries are registered. For example, if a UK company has a bank account in the Great Basin region and its beneficiary is a Russian tax resident, then when classifying the company as an active, the account information will only be passed to the UK tax authorities. In the case, however, where the company is recognized as a passive structure, information on the accounts will be available to the tax authorities of both the UK and Russia.

Russians and controlled foreign companies (CFCs)

According to bankers, only half of Russians who own controlled foreign companies (CFCs) declare them to the tax authorities. The rest are likely converting them into structures without clear signs of control or registering them under nominal owners.

Automatic exchange of financial information

Countries began exchanging data at different times. Some, referred to as the "first wave," started sharing information from 2017, transmitting data for 2016 — these include Cyprus, the United Kingdom, Spain, Germany, and Estonia, while the "second wave" began exchanging data in 2018.

Common Reporting Standard (CRS)

CRS has become a common standard for information exchange within the European Union through amendments to the EU directive on administrative cooperation (DAC 2). Countries outside the EU must also enter into bilateral agreements and adopt legislative changes. To date, more than 1,800 agreements have been concluded, mainly between "first-tier" countries.

Expectations and recommendations

Russia's accession to the CRS seems like an effective step in the fight against tax violations. An increase in the number of people declaring their foreign accounts is expected, especially after the imposition of sanctions. The recommendation in the new conditions is to structure activities in accordance with regulatory requirements. 60 private bankers dealing with large capital participated in the survey.

Important points about automatic exchange of financial information

Signing of the agreement by Russia on automatic exchange of financial informationIt was an important step in the fight against tax evasion and the illegal transfer of capital abroad. With each passing year, more and more wealthy Russians are realizing the necessity of notifying tax authorities about foreign accounts, which indicates a trend towards transparency and honesty in financial operations.

Prospects for automatic exchange of account information

The agreement allows tax authorities from different countries to exchange information about the accounts of individuals and corporate entities, which helps combat tax evasion and concealment of income. Transparency and openness in financial operations are becoming fundamental principles in modern international business.

Methods for verifying non-residency

It is important to remember that non-residency can be verified by financial institutions using various methods, including IP address, the residency of the individual, and money transfers. Information about accounts is subject to exchange only if they pertain to tax residents of the countries participating in the agreement.

Cooperation between states in information exchange

The cooperation of various countries in the exchange of financial information creates a more transparent and effective system for monitoring financial transactions. As a result of this initiative, the fight against tax violations becomes more efficient and effective.