Anabasis of Private Capitals in 2024: How Do We View Bank Secrecy Now?

In early September, the Ministry of Finance announced the successful first international automatic exchange of financial account information within the CRS framework. What did the tax officials actually find out, and what did they do afterwards?

What the Launch of the Automatic Exchange of Information Gave the World

Let us start with some information and numbers. In 2022, more than 123 million financial accounts with total assets of almost €12 trillion were automatically exchanged. Such figures are given in the report of the OECD (Organization for Economic Cooperation and Development) “Overview of the Implementation of the Automatic Exchange of Information on Financial Accounts in 2023”.

Almost €126 billion in taxes, interest and penalties have been collected by jurisdictions through automatic disclosure programs and other tax compliance initiatives following the implementation of the AEOI (Automatic Exchange of Information) standard.

Financial investments held in international financial centers have reportedly decreased by 20% over the same time period, also attributed to the implementation of the AEOI standard. Accordingly, this year, with more jurisdictions joining, including Ukraine, these numbers will increase.

How Many Countries Shared Information with Ukraine

Currently, more than 120 countries have joined the standard. Does this mean that information to the tax authorities of Ukraine will automatically come from all these jurisdictions and vice versa? The answer is no – the initiative is necessary from both sides to activate the mutual exchange of information. Ukraine included 118 participants in the list of accountable jurisdictions for reporting purposes, but not all of them reciprocated.

According to current OECD data, 59 countries have activated automatic exchange with Ukraine. It is interesting that Switzerland, with which the Ministry of Finance announced an automatic exchange in 2022, based on the results of 2023, still did not include Ukraine in its list of information exchange for this period. Consider it as empathy for account holders in the bankrupt Credit Suisse (and its successor UBS), so that they could avoid additional stress.

What Information Was Actually Provided to Ukrainian Tax Authorities

The question logically arises: does this mean that the first automatic exchange of information in 2024 will contain data from 2023? The answer is not so obvious: the first period for Ukraine is the second half of 2023. However, it is important to understand that this applies to accounts reported by Ukraine (those of non-residents, opened in Ukrainian financial institutions).

As for receiving information from other jurisdictions on the accounts of Ukrainian residents at controlled foreign companies of Ukrainian beneficiaries, the information may also be received retrospectively, for several reporting periods. The specific terms depend on the terms agreed between the two countries. For example, between Ukraine and Bulgaria, CRS MCAA has been activated for the tax periods since 2017, with Hong Kong — for tax periods starting from January 1, 2020.

Which accounts are subject to automatic exchange of information? The first exchange, which has already been carried out, is for the new accounts opened after July 1, 2023, and accounts of high-value individuals (accounts of individuals with a balance or value of more than $1 million as of June 30, 2023). The next exchange, planned for 2025, will cover a wider range of accountable accounts. State Tax Service of Ukraine reported receiving information from more than 50 foreign jurisdictions and sending information to more than 30 jurisdictions.

“Letters of Happiness” from Tax Officials et Cetera: First Automatic Exchange Results

It is still too early to talk about the results of automatic exchange in numbers, but some resonance is already felt. There is information that some PEPs (politically exposed persons) have received enquiries whether they want to correct their declarations, previously submitted to the National Agency on Corruption Prevention.

It is not difficult to guess that not all declarants entered information about their foreign accounts in their declarations. It is also worth mentioning that the first reports on CFCs (controlled foreign companies) have been recently submitted in Ukraine, and it will be easy to compare them with the results of the financial information automatic exchange. They will clearly reflect the movement of funds between declared CFCs and undeclared own accounts in foreign banks.

One more important thing. Many tax residents of Ukraine opened foreign accounts during the hostilities. Accordingly, banks, in order to comply with the CRS provisions, received information on the tax residency of new clients. Consequently, if the bank has information about the Ukrainian tax residency of a person along with other data indicating their potential tax residency in other countries, there is a possibility that the information about the account of such a person may be sent both to Ukraine and to other countries.

In such cases, banks will pay attention to the following information: stay in the country for more than 183 days, address of permanent residence, client’s phone number, sources of permanent income to the account, or instructions for transferring funds to a certain country. Therefore, accountable persons should provide justification for their tax residency if several countries consider them as their residents, based on the results of the automatic exchange of information.

However, CRS standards formally provide for the provision of a self-identification questionnaire to the institutions, in which the person must independently determine the country of their residence.

By the way, according to the Data Protection Act, in Switzerland, the account holder, who is the accountable person, has the right to know exactly what information about them has been provided to the tax authorities. In case the inaccurate information is found in the banking system, the bank must correct the errors.

Iryna Matsapura

Partner of K.A.C. Group

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