Automatic exchange of tax information -
what should we prepare for?
Not long ago, I had a talk with representatives of FICO TONBELLER, which offers solutions in the field of combating money laundering and terrorist financing (AML/CFT). The solution is a specialized IT system that allows increasing the effectiveness of financial institutions by automating AML/CFT activities, compliance with the regulator's reporting requirements for investigating suspicious transactions. The solution consists of modules AML, FATCA/CRS, KYC, Embargo, recognized internationally and implemented in more than 1000 financial institutions around the world. I consider FATCA/CRS is more interesting from the presented modules.

So FATCA is a kind of relationship between the US taxation system and its citizens living outside the US. In order to increase tax revenues in the US in 2010, the FATCA (Foreign Account Tax Compliance Act) was created, providing for the disclosure of American taxpayers information to financial institutions around the world. Many countries signed agreements with the United States that banks and other financial institutions were required to identify US clients and report them directly to the US Internal Revenue Service (IRS) or to their tax office for later transfer to the US tax service. Russia in 2014 signed an agreement on compliance with the FATCA, otherwise financial institutions were expecting a sanction in the form of 30% of the penalties on the movement of funds from their correspondent accounts in US banks until closing.

The successful experience of the United States inspired the Organization for Economic Cooperation and Development (OECD) to create a similar system. CRS (Common Reporting Standard) is considered a European analogue of FATCA, it is an automatic exchange of financial information for tax purposes.
More than 100 countries have already joined the CRS, some of them will launch the exchange in 2017, the rest starting from 2018 (including Russia). The financial world is becoming much more transparent.

Thus, all financial institutions (banks, investment funds, insurance companies, brokers, depositories, etc.) will become informants of tax authorities.

Banks will inform the tax authorities of foreign countries of all information about the account: account details, transactions, balances, interest, beneficiaries, dividends; meanwhile for the past tax periods (up to 2012). The criterion of legal entities is an account of over $ 250,000, individuals without restrictions. It is important that the bank will need to establish the residence of the person. The process is not an easy one, since in some European countries the number of days the person spent there is not taken into account, but at the center of key interests are children, home, close relatives, education, medicine, communal and rent payments, etc. The whole process will be automated and there are already a lot of European IT companies ready to provide this product. The fact that Russia has signed the Multilateral Competitive Authority Agreement (MCAA) and agreed to join the automatic exchange standards does not mean that other participating countries agree to send information to Russia, in addition, separate agreements should be signed with each country, and after that the software solutions should be adjust with the current legislative base. It should be noted that the requirements of the US FATCA law are fulfilled by almost all foreign financial institutions around the world, while it will not be clear how CRS will be implemented by the US.

I am sure that in Russia this standard will work in 2018 or in 2019 and it is necessary to understand what will happen with tax optimization in two, three years. The fact that tax optimization will become completely different and it is necessary to prepare for it today.

Samvel Airapetyan