HOW AUTOMATIC EXCHANGE OF TAX INFORMATION WORKS BETWEEN CIS STATES

By promulgation of the adopted Law No. 53-3 dated 18.08.2020 Belarus was the last member state to join the Protocol on electronic exchange of information between the CIS member states for tax administration purposes (hereinafter — the “Protocol”), which was signed by the Prime Ministers of Azerbaijan, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russian, Tajikistan and Uzbekistan. Automatic exchange of tax information between the mentioned states becomes a reality.

As part of the Action Plan on Base Erosion and Profit Shifting (BEPS), three main principles of cooperation between tax authorities of different countries was defined to combat tax evasion and money laundering:

  • Exchange of Information on Request — EOIR;
  • Сountry-by-Country reporting — CbC;
  • Common Reporting Standard — CRS.

Taking into account that Belarus only plans to join the Global Forum on Transparency and Exchange of Information for Tax Purposes and the Inclusive Framework to implement the BEPS Action Plan, its joining the automatic exchange of tax information between the CIS states affords new opportunities for tax monitoring and will allow on a regular basis, and not upon requests, as now, to exchange information between Belarus and tax authorities of the CIS states on the income and property of tax residents.

In this regard, it is important for the interested parties to know and understand how such a procedure can work in practice. It is the citizens who declared tax residency in another CIS state, but actually live in Belarus, who should first of all pay attention to the commencement of automatic exchange of tax information within the Commonwealth. It is also important for those who did not disclose information about their assets in the CIS states to the tax authorities.

The Ministry of Taxes and Duties was made responsible for fulfillment of the obligations assumed by Belarus under the Protocol. Information received by the Belarusian Ministry of Taxes and Duties in accordance with the Protocol will be used to ensure control over compliance with tax legislation, including control over completeness of tax payments to the budget, enforcement, administrative and judicial proceedings.

Article 1 of the Protocol provides for exchange of the following information between the CIS member states:

A.    on certain types of income of legal entities and on legal entities –

а) income of a legal entity of one participating state, taxed at the source of payment in another participating state: dividends; income on debt obligations; royalties, including income from the use and/or granting the right to use intellectual property items; income from the lease of property; income from the disposal of securities, other than shares; income from the disposal of shares, interest, equities; income from the alienation of movable and immovable property; other income;

b) income of a legal entity of one participating state, received through a permanent establishment in another participating state;

c) on legal entities of the participating state that provides information, in the authorized capital of which there is a contribution (share) of legal entities - investors of the participating state that receives information;

d) on legal entities that accrued (paid) the income specified in sub-сlause "a" to the legal entity of the participating state that receives information;

e) on the permanent establishments of a legal entity that accrued (paid) the income specified in sub-clause "a" to a legal entity of the participating state that receives information;

f) on permanent establishments of a legal entity of the participating state that receives information, gaining income from activities in the state that provides information;

g) on legal entities - investors of the participating state that receives information, which made a contribution to the authorized capital (acquired a share in the authorized capital) of a legal entity of the participating state that provides information;

h) on legal entities of the participating state that receives information, to which the income specified in sub-clause "a" was accrued (paid);

i) on legal entities of the participating state that receives information, to which the permanent establishments of foreign companies carrying out activities in the participating state that provides information accrued (paid) income specified in sub-clause "a";

k) on legal entities of the participating state that receives information, which gained income through the permanent establishments in the territory of the participating state that provides information.

B.     on certain types of income of individuals and on individuals –

а) on the following income of individuals of the participating states: income from employment; remuneration under civil law contracts; dividends; royalty, including income from the use and/or granting the right to use intellectual property items (if available in information resources); income from transactions in securities (from disposal of securities); income from disposal of shares in the authorized capital of a legal entity; income from disposal of immovable property (if available in information resources); other income;

b) when exchanging information on certain types of income of individuals, the competent authorities of the participating states ensure the provision of complete information in relation to legal entities, individuals registered as individual entrepreneurs, and individuals of the participating states, who accrued (paid) the income specified in sub-clause "a" above to individuals - citizens and/or tax residents of one participating state in the territory of another participating state.

C.    on certain types of property and its owners –

а) on certain types of property (vehicles and immovable property) registered (located) in the territory of one participating state and its owners being legal entities or citizens of another participating states. This information includes information about property owned in the reporting year;

b) on residence address (address of stay) of a citizen of one participating state who is the owner of the property registered (located) in the territory of another participating state. Note that if it is impossible to determine the address of such a citizen of the participating state, it is reported that information about the address is unavailable;

c) complete information on the property, on the citizens of the participating states who are the owners of the property, on the legal entities of the participating states being the owners of the property;

d) the amount of the tax base for property tax from which the property tax was paid for the reporting period (if available in information resources); the amount of the accrued and/or paid tax on property registered (located) in one participating state and owned by a legal entity of another participating state, for the reporting year (if available in information resources).

Note that the exchange of information will be carried out by the competent authorities of the states -parties to the Protocol in electronic form through open channels of communication using the cryptographic information protection tool "Crypton-Ankad", which ensures security of information exchange. It is also important to take into account that the competent authorities of the states - parties to the Protocol independently develop the software designed to generate and process information. At the same time, the participating states also declared that the information received by the competent authority in accordance with the Protocol is confidential: access and dissemination are limited in accordance with the legislation of the states - parties to the Protocol.

The exchange will take place annually based on the results of the reporting year, starting with the provision of information for the reporting year in which the Protocol entered into force, as well as following the clarification of the previously provided information for previous years. Thus, the first automatic exchange of information will have to take place already in the next 2021.

The exchange of information on income, legal entities and individuals will be carried out by the competent authorities of the participating states no later than August 1 of the year following the reporting one. The exchange of information on certain types of property registered (located) in the territory of one participating state and its owners who are the citizens of other participating states will be carried out no later than June 15 of the year following the reporting one.

The competent authorities of the participating states, within 10 working days from the date of receipt of the information, confirm it by the notice of receipt of information used in the electronic exchange of information in accordance with the form posted on the website of the CIS Executive Committee.

Information prepared as of 01/11/2020 

Partner of COLLEGIA Law Firm,

Certified Lawyer Igor Stukanov

Tel.:     +375 (29) 623-94-76

E-mail: stukanov@collegia.by