Eternity Law International News International exchange of tax information

International exchange of tax information

August 18, 2020

International exchange of tax information within the framework of BEPS. Globalization, which has marked the 21st century, has revealed many problems of some separate states.

Moreover, one of the most important and significant was the problem of creating so-called offshore holes, where significant financial assets can be hidden, regardless of their origin.

First time they thought about it during an investigation into the financing of terrorist acts in New York was conducted.

However, in addition to sources of financial support for terrorist operations, such offshore havens also hid the capital of those individuals who evaded taxes in their countries, as well as the savings of criminals, persons with significant political and social influence, and corrupt officials.

As a result, a strategy to combat tax evasion was developed, which became known as BEPS. To eliminate the BEPS problem, a standard was created, according to which the automatic exchange of information regarding the payment of taxes between states is provided.

Countries that provide tax credits and establish a zero tax rate have been included in such exchanges in a special way.

The exchange of information on taxes, carried out at the international level, has significantly increased the transparency of the global economy for tax control authorities.

However, this concept also has a downside. Where the overall tax burden on financial assets increases, the activity of entrepreneurs and investors is significantly reduced.

As a result, if the above risks are realized, we can expect a decrease in the rate of global economic growth.

What information is sent according to the automatic international exchange of tax data in accordance with the CRS standard?

The following information is sent

  • Full name, taxpayer identification number, legal address, individuals must also mention the date of birth;
  • Bank account number;
  • Name and details of the financial institution where the specified account is registered;
  • The amount of funds remaining on the account at the end of the reporting year (as of 31.12) or on the date the account was closed.

What happens to tax data that comes from abroad?

The information is received at the end of the year following the reporting year.

It means that the verification of data will only begin at the beginning of the annual period that follows the year following the reporting one: the verification of information in 2019 will be carried out at the beginning of 2021.

For legal entities, it will be mainly checked whether you, as the owner of a company abroad, from paying taxes or not.

It is also necessary to submit to the tax return the opinion of independent auditors on the results of the business activity of your company, or, for those countries in which an annual audit is not mandatory, only a financial report.

However, the FTS prefers to request exactly the opinion of the auditors, so we recommend preparing it in advance.

In addition, you may be required for an account statement in a foreign bank in order to check whether all transactions comply with foreign exchange controls. It also depends on what turnovers and balances you have at the end of the reporting period.

How to avoid the trouble of taking over foreign company ownership and foreign bank accounts in the international exchange of tax data?

If you have the opportunity not to get into the automatic exchange of tax data, use this chance. How can you did it?

  1. Try to reduce your share of ownership in a foreign company to below 25%, only if, in addition to yours, there are no owners of shares in the capital of the same company in your country. If there is, then lower the share to less than 10%.
  2. At the end of the year, as of December 31, do not leave an amount in your bank account that exceeds $ 250,000. Try talking to the bank where you have an account. Some banking institutions provide the option to send funds on December 30 with a non-urgent payment and receive them on January 2 at another bank.
  3. Try to lower your personal account annual turnover.
  4. You can also register a company in a country that does not automatically exchange tax data: Britain, Turkey, the United States, Thailand and some others. You just need to do it very carefully.

The above methods are the most effective and simplest methods to avoid getting into automatic exchange.

The accounting department of the company must compile quarterly, annual financial reports and provide declarations to the tax service. Contact us for more information.

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