Legal tips: what Russian owners of foreign bank accounts should know about MCAA
In May 2016, Russia joined
A survey by Tranio and Adam Smith Conferences showed that the number
What is the Agreement?
The MCAA compels banks, brokerages, investment bodies and insurance companies in signatory countries to provide local tax authorities with bank account information pertaining
The agreement has over 100 signatory countries: European states, Canada, island countries (the BVI, St. Kitts & Nevis, the Bahamas, etc.), in addition to several Middle Eastern and Asian nations (e.g., the UAE, Saudi Arabia, India and China). The full list of participating countries is available
According to the survey results, Russian nationals who move their capital to jurisdictions not party to the Agreement most often choose Singapore, which is set to join the Agreement next year, but is not going to exchange data with Russia, nor the US. Other popular options are Armenia, Serbia and Montenegro.
non-resident status be checked?
What types of accounts does the Agreement concern?
The information passed on pertains to:
- the accounts of individuals who are tax residents in countries participating in the Agreement (referred to as "Reportable Persons");
- corporate accounts of companies, funds and trusts controlled by one or more Reportable Persons either directly or via a passive
Non-FinancialEntity (NFE). Such NFEs include all types of business entities, of which over 50% of income received derives from passive sources (real estate, dividends, royalties, etc).
- retirement accounts;
fixed-termlife insurance accounts;
- escrow accounts;
- the accounts of legal entities, opened prior to the end of 2015 (2016
for “non-earlyadopters") whose balances do not exceed $250,000 as of 31st December of the corresponding fiscal year (but both the state and the bank have to agree to the condition of not exchanging information on such accounts).
What information will tax authorities gain access to?
On each Reportable Account the information to be collected and passed on includes:
- information on the Controlling Person (name, date and place of birth, address, tax residency, Tax Identification Number (TIN));
- the account number (or functional equivalent in the absence of an account number);
- financial information (account currency, current balance, profits obtained from passive investment operations);
- information on the financial institution the account is opened with.
In this way, tax authorities will indirectly gain information on their
Where will the information be sent?
The information on the account of an active foreign company (whose income from passive sources does not exceed 50% of the total income) is only passed on to the state of its residency, whilst the information on the account of a passive company is passed on to both to the country of its residency and to the countries of which its beneficiaries are residents.
For instance, a company registered in the UK has an account with a bank in the BVI.
Bankers believe that no more than 50% of Russian Controlled Foreign Corporation (CFC) owners notify the tax authorities of ownership. Those unwilling to disclose information on the CFCs frequently transform them into structures with no formal control criteria or
When will the Agreement come into effect?
The signatories of the Agreement are divided into two groups:
- "early adopters" that commence the exchange of data in 2017 and provide information from 2016. They include most European countries: Cyprus, the UK, Spain, Germany, Estonia.
“non-earlyadopters” that commence the exchange in 2018 and provide 2017 data. This group includes Switzerland, the UAE, Singapore, Panama, a number of island states and Russia.
The Common Reporting Standard (CRS) was introduced in the EU as amendments were made to the EU Directive on Administrative Cooperation (DAC2).
To date, over 1,800 agreements have been signed, mostly between the "early adopters". In July 2017 there will be another round of negotiations during which the question of concluding agreements with the rest of the jurisdictions, including Russia, will be raised.
As demonstrated by the survey, the majority of those unwilling to notify the Russian tax authorities of their foreign accounts effectively change their tax residence, as this is the only way to avoid reporting their foreign accounts.
Ekaterina Shabalina, Tranio lawyer
* 60 private bankers working with Russian HNWIs took part in the survey