Automatic Exchange of Financial Information (CRS): What the Tax Service Sees and Why It Is Important for Ukrainian Business

Automatic Exchange of Financial Information (CRS): What the Tax Service Sees and Why It Is Important for Ukrainian Business

What is CRS and why is it implemented

CRS (Common Reporting Standard) is an international standard for the automatic exchange of financial information, approved by the Council of the Organization for Economic Cooperation and Development (OECD) on July 15, 2014. Financial institutions transfer data on non-residents' accounts to their tax authorities, and the latter to the relevant foreign authorities.

In Ukraine, the CRS mechanism of financial exchange is combined with amendments to the Tax Code of Ukraine (TCU), which implement international obligations into national legislation.

When Ukraine joined the CRS and when data sharing began

On August 19, 2022, Ukraine joined the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information as a competent authority through the State Tax Service of Ukraine (STS).

To implement the CRS into national legislation, on March 20, 2023, the Verkhovna Rada of Ukraine adopted the Law of Ukraine No. 2970-IX, which amended the Tax Code of Ukraine and other legislative acts regarding the automatic exchange of information. This law entered into force on April 28, 2023.

Following the assessment of the level of information security of the State Tax Service by the Global Forum of the Organization for Economic Co-operation and Development, on June 28, 2024, the CRS Multilateral Agreement entered into force for Ukraine, and the first real automatic data exchange took place in 2024 for data for the 2023 calendar year.

Norms of the Tax Code of Ukraine regulating CRS

The main provision in the national legislation is Article 39-3 of the Tax Code of Ukraine — "International Automatic Exchange of Information and Reporting on Reportable Accounts".

This article determines:

• list of reportable accounts and the principles of their establishment by financial agents;
• obligations of financial institutions to prepare reports on reportable accounts;
• the procedure for submitting reports to the State Tax Service for data exchange with partner jurisdictions under the CRS;
• interaction with international treaties, in particular the CRS Multilateral Agreement and the relevant provisions of the international standard.

These provisions provide a legal basis for the automatic exchange of information through the State Tax Service within the framework of the CRS.

What data is transferred within the CRS

In accordance with the provisions of the international standard and implementation in the TCU, financial institutions-reporting agents submit to the State Tax Service:

• identification data of account holders (name, date of birth, tax residency, tax number);
• account number and name of the financial institution;
• balance of funds or value of assets at the end of the reporting year;
• amounts of income (interest, dividends, other income);
• information about controlling persons (UBO), if the account belongs to the company.

Which accounts and assets are subject to CRS

CRS covers a wide range of financial accounts, including:

• bank current and deposit accounts;
• investment and brokerage accounts;
• accounts of trusts, foundations and other financial structures.

All these accounts become "accountable" if their owners or controlling persons are tax residents of the countries participating in the automatic exchange.

How banks determine tax residency

Financial institutions, in accordance with the requirements of the Tax Code of Ukraine and the CRS standard, must carry out due diligence of customers:

• receive self-declarations of tax residency from clients;
• check addresses, tax numbers and other indicators;
• analyze additional indicia if there are inconsistencies.

This allows you to correctly identify whether a particular person or company is a tax resident of another jurisdiction.

Within the framework of CRS, indicia is factual data about a client that may indicate that he is a tax resident of a certain state. They are used during due diligence by financial institutions in accordance with the CRS standard and Article 39-3 of the Tax Code of Ukraine.

If the bank detects indicia that indicate another tax residency, it is obliged:

• request additional documents or self-declaration;
• or classify the account as accountable and include it in CRS reporting.

Main types of indicia

The most common indicia that banks take into account are:

1. Address of residence or registration in another country
2. Place of birth outside the country where the account is opened
3. Phone number with foreign code
4. Tax number (TIN) of another state
5. Standing payment instructions to accounts in another country
6. Power of attorney or signature right issued to a person from another jurisdiction
7. IP addresses and digital traces (in banking compliance practice)
8. Actual place of management (for companies)

Even one indicia can be the basis for additional verification.

It is important to understand that indicia is not an automatic confirmation of tax residency, but:

• they run a check;
• without proper explanation can lead to:
• double declaration;
• transfer of information to several tax authorities;
• increased attention of the bank and the tax authorities.

For example, a client declares himself a tax resident of Ukraine, but:

• has a residential address in Cyprus;
• uses a Cypriot phone number;
• receives dividends to a Cypriot bank account.

For the bank, this is a set of indicia that may indicate a tax connection with Cyprus. Without additional documents, the account will be included in the CRS reporting as accountable.

Indicia are important for businesses because:

• affect what data will be transferred and to which country;
• directly related to CRS, CFCs, financial monitoring and bank compliance;
• often cause account blocking or denial of service.

What exactly the tax office of Ukraine sees

After receiving data from partner tax authorities of the State Tax Service:

• establishes the presence of foreign financial accounts with Ukrainian residents;
• compares data with declared income and assets;
• analyzes financial flows to identify possible inconsistencies in tax reporting;
• uses information for tax audits and risk analysis.

Automatic exchange actually provides the State Tax Service with "objective information from foreign sources", which tax authorities could previously receive only upon request or in court.

Linking CRS with Controlled Foreign Companies (CFCs)

CRS is an important tool for controlling the accounts of foreign companies, where Ukrainian tax residents act as controlling persons. Data on the accounts of such CFCs allows:

• identify the actual beneficiaries;
• track the movement of funds;
• compare tax returns on CFCs with actual data.

This significantly increases the effectiveness of tax control and reduces the possibility of evasion.

Common mistakes and risks

Among the most common mistakes:

• incorrect indication of tax residency;
• opening accounts for nominees;
• lack of explanations about the sources of funds;
• ignoring the tax declaration of foreign assets.

Automatic sharing makes hiding financial data extremely difficult.

Practical recommendations for minimizing risks

To adapt to CRS requirements, businesses should:

• correctly determine tax residency;
• to declare all foreign income in a timely manner;
• conduct internal tax audits;
• ensure proper documentation of transactions.

Conclusion

Today, CRS is not only an international standard, but a full-fledged part of the Ukrainian tax environment due to its implementation through the Law of Ukraine No. 2970-IX and the provisions of Article 39-3 of the Tax Code of Ukraine. After Ukraine's accession to the multilateral agreement in 2022, the legislative implementation of the standard in 2023 and the actual start of the automatic exchange of financial information in 2024, this mechanism began to work in practice.

The tax authorities received an effective tool for controlling transnational financial flows and foreign assets of Ukrainian residents, which significantly increased the level of tax transparency and business responsibility. For Ukrainian taxpayers, this means the end of the era of "invisible" accounts and the transition to a new reality, in which the tax authorities see much more than before. In such conditions, the only effective strategy is not to avoid the system, but to competently work within its boundaries — by building legal, transparent and protected business structures.