<p><span>The new global standard on Automatic Exchange of Information (AEOI) reduces the possibility for tax evasion. It provides for the exchange of non-resident financial account information with the tax authorities in the account holders’ country of residence. Participating jurisdictions that implement AEOI send and receive pre-agreed information each year, without having to send a specific request.</span></p><div><h2 style="text-align: center;"><strong>What is AEOI?</strong></h2></div><p>This is an international system of agreements and technical solutions that allows a specific country to obtain information about financial assets of tax residents outside its territory.</p><p>The main task of automatic exchange is the collection of information to combat tax evasion. Example: German citizen opened an account in Switzerland and didn't declare it. He also didn't indicate the income on it in the declaration. The German tax service will compare the data in the declaration with the reports of colleagues from Switzerland (and other countries) and add taxes with the corresponding penalties.</p><p>In fact, today there are two systems of AEOI in the world. The first is FATCA (Foreign Account Tax Compliance Act) - an American law that requires foreign financial institutions to report on the contributions of citizens and US tax residents to the IRS (US tax service). In case of refusal to transfer information about an American citizen, bank or other financial institution, sanctions are threatened.</p><p>The second system is Common Reporting Standard (CRS) or the Single Reporting Standard. The Creator is the Organization for Economic Development and Cooperation (OECD), which conducts the project in the framework of combating the erosion of the tax base.</p><p>FATCA collects information only in favor of the US, and CRS operates on the basis of the Multilateral and Bilateral Agreements between more than a hundred countries. With CRS, states exchange data with each other on a voluntary basis. In some cases, the state has the right to refuse to receive information from the other party, but at the same time continue to send data from itself.</p><p>CRS most often called the automatic exchange of tax, financial or banking information. However, it is worth remembering: if you have an American passport, then you must report to the IRS and pay taxes in the States, regardless of where and how long you live.</p><p>Automatic exchange of banking information must be completed by the end of September each year. The first exchange between member countries took place in September 2017 for 2016. In 2018, there will be a second exchange, to which new countries will be connected. They will provide information for 2017.</p><div><h2><strong>What information can be transmitted?</strong></h2></div><p>Financial institutions always collect information about their clients. In the framework of automatic exchange, they undertake to collect and transmit very specific data.</p><p>The client will be asked to provide: full name, residential address, specify the country of tax residence, tax number (TIN), account number, data on balances and movement of funds on the account. If it's a company (the exchange works for individuals and legal entities), then it's necessary to know the business registration data, identification number, beneficiaries data (true beneficiaries of the company).</p><div><h2><strong>How does it works? Who are the participants?</strong></h2></div><p>The system is quite simple: the bank serves the customer and collects information about him. After that he prepares a package of data on foreign residents and sends them to the responsible tax service. There, the data is sorted by countries with which a bilateral agreement is concluded, after which they are sent by the array.</p><p>It should be noted that in spite of the fact that the Multilateral Convention on Mutual Assistance has been signed by more than 100 countries, not every country exchanges with each. First, only 79 countries have activated the automatic exchange at the moment. Secondly, even in this case, you can choose with whom to cooperate, and with whom not.</p><p>Some of them send data to all 79 states, but accept only part of it, for example, Great Britain (receives from 63 countries, and sends to 79).</p><p>During 2018, it's planned to connect several more countries to the exchange. Ideally, all countries of the world connect to the CRS system. There are opponents of bilateral exchange and it will be very interesting to see how the world will try to persuade the US to transmit information from the secret companies of Delaware and Wyoming. States receive data about their citizens with the help of the FATCA and are reluctant to share data on foreign investors on their territory.</p><p>Thanks to the work of AEOI, different countries authorities have already collected additional taxes for billions dollars. You can be sure that the process of information-sharing networks will continue.</p><div><h2><strong>Who are reporting?</strong></h2></div><p>To meet the requirements for reporting in the CRS framework is necessary for financial institutions (FI). Banks, insurance companies, non-state pension funds, investment funds, dealers, brokers, etc. fall under this definition.</p><p>They are obliged to check clients and their funds for legality in the framework of anti-laundering legislation, as well as transfer data on depositors to the tax service in the framework of CRS and FATCA. In case of concerns regarding the client, it is easier for the bank to refuse to service it, so as not to lose the banking license.</p><p>That is why the preparation for opening a bank account is an extremely important stage. Errors in documents, the inability to prove the legality of the funds origin and much more will cause the client to refuse to open an account.</p><div><h2><strong>Will you have to pay more taxes?</strong></h2></div><p>Due to the fact that the tax authorities find out about the foreign financial assets of the residents, the natural question arises: do you have to pay more taxes? Only if the person evades taxes.</p><p>The main objective of the system is to make sure that tax residents pay taxes in full. If a person declares foreign assets and pays the taxes required by law, then there will be no claims against him.</p><p>However, if a person has opened a secret account in a distant offshore company that is now exchanging data with the country of residence of a person, then it is threatened by taxes and fines. For particularly large tax evasion in some countries, including criminal prosecution and prison.</p><div><h2><strong>Privacy of personal data</strong></h2></div><p>According to the OECD framework, personal and tax data in AEOI are protected very well. The requirement of the Standard is that security is provided, both by technical and legal means.</p><p>However, in some countries, the security of personal data raises concerns. This also applies to Russia. For example, Switzerland reported that it would refuse to exchange with Russia if its information was not used for its intended purpose (not only in tax matters, but wider).</p><div><h2><strong>How to avoid Automatic Exchange?</strong></h2></div><p>There are several approaches.</p><ol><li>Transfer assets to a country which not transfer information to the state of your tax residence. Unfortunately, the measure is temporary: after a few years all or almost all states join automatic exchange, and those that do not join will be extremely rogue and cooperate with them will be extremely difficult (unless the US remains in an independent regime).</li><li>Close foreign accounts and get rid of foreign accountable assets. Not all foreign assets are required to be declared, but financial ones, such as bank accounts, are too convenient to refuse them. Moreover, it is necessary to diversify the risks, so rejecting foreign assets is a short-sighted step.</li><li>Change the tax residency. This will not save you from reporting, but will reduce the risks of disclosing personal information to journalists, raiders and greedy officials outside the tax service. In addition, in some jurisdictions, tax residency implies reduced or even zero taxes on foreign incomes and not only.</li></ol><p>Regardless of the option chosen, remember: without problems, only those assets that have a legal origin and complete documentation that prove the legality of the funds for their acquisition will turn out to be. It doesn't matter if you remain a tax resident in Russia or move to Andorra, it's best to own legitimate assets so that you do not have to deal with unnecessary problems when working with tax specialists.</p><p><span style="color: #444444; font-family: Arial, sans-serif; font-size: 10.5pt; text-align: justify;"> </span></p><p><span style="color: #444444; font-family: Arial, sans-serif; font-size: 10.5pt; text-align: justify;"> </span></p><p style="text-align: center;"><em> If you have any questions, feel free to ask them to<strong> Castle Castle Office</strong> specialists! 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