Conducting international business without paying taxes is like playing football without rules: fun at first, but ultimately chaotic. In the context of constant international cooperation between various companies, countries were faced with the need to establish rules that could ensure compliance with tax regulations. Alongside this, it became equally important to implement a system that could guarantee transparency in financial transactions and prevent tax evasion.
To support this effort, the international community developed the Common Reporting Standard (CRS) — a Standard for the Automatic Exchange of Financial Account Information in Tax Matters. CRS was adopted by the Organisation for Economic Co-operation and Development (OECD) in 2014. At that time, leaders of major countries were particularly interested in implementing automatic information exchange and signed the global Common Reporting Standard for the Automatic Exchange of Tax Information (AEOI).
Such prompt action by the international community led to an official call from the G20 leaders to adopt CRS. As early as February 2014, the OECD approved the text of CRS, and shortly thereafter, 44 jurisdictions committed to implementing the Standard.
The scope of CRS implementation continued to grow, as an additional 14 jurisdictions later undertook commitments to comply with the Standard. Later, thanks to the Global Forum, another 94 jurisdictions agreed to apply CRS.
In December 2014, the European Union adopted the CRS text by amending the Directive on Administrative Cooperation (DAC2).
So, what is CRS?
The Common Reporting Standard (CRS) is an international standard that provides for the reporting and due diligence procedures related to financial account information. Its primary aim is to prevent tax evasion and increase transparency through the exchange of financial information between countries.
CRS stipulates that financial institutions of participating jurisdictions must regularly exchange information about foreign tax residents with other countries.
This obligation applies to both individual accounts and accounts held by entities, including companies, private foundations, and trusts. However, not all accounts are reportable. These rules apply to accounts whose holders are tax residents of jurisdictions that have joined the automatic exchange of information. In addition, the
Standard sets rules for proper due diligence on accounts — covering both new and pre-existing accounts.
What information is shared under CRS?
CRS provides for the exchange of personal data about the account holder, namely:
· Surname, first name, patronymic (if applicable), or entity name;
· Permanent residence address;
· Jurisdiction of tax residence;
· Tax Identification Number (TIN);
· Date and place of birth (for individuals);
· Information about the financial account;
· Total gross amount credited to the financial account for the benefit of the account holder during the calendar year.
Additionally, if the account holder is not an individual, the following information must also be included: the entity’s address, country of tax residence, and tax identification number.
Thus, CRS is an important standard that lays the foundation for transparent financial transactions and reduces the risk of legal violations. Over 110 jurisdictions, including Ukraine, have joined the Standard.
However, some countries have refrained from joining the Standard. For example, the United States, despite implementing FATCA, remains outside of CRS. Other jurisdictions that currently do not apply this exchange mechanism include Egypt, Algeria, Serbia, the Dominican Republic, and others.
To implement the Standard, on March 20, 2023, Ukrainian lawmakers amended the Tax Code of Ukraine. As a result, national financial institutions are required to carry out due diligence on reportable accounts and submit the necessary information to the State Tax Service of Ukraine.
At the end of September 2024, Ukraine conducted its first information exchange under CRS, and the next one is scheduled for September 2025. The information obtained through this exchange will help identify hidden untaxed income and apply tax legislation to reportable persons.
From now on, Controlled Foreign Companies (CFCs) will no longer be able to remain in the shadows, as with the implementation of CRS, Ukraine’s tax authorities gained the ability to automatically exchange information about the foreign accounts of Ukrainian residents.
Thus, CRS is a crucial tool in combating untaxed financial operations. Its widespread adoption by many countries not only demonstrates its necessity and relevance but also its high effectiveness.
The Standard facilitates comprehensive due diligence on the accounts of both individuals and entities and enables transparent financial information exchange.
Compliance with CRS rules promotes proper taxation of reportable entities and enhances the reputation of a jurisdiction as a responsible participant in international relations.
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