Results of the 2022 peer review of the implementation of the automatic exchange of financial information in Russia

On 9 November 2022, the Organisation for Economic Co-operation and Development (OECD) published its 2022 Report on the peer review of the automatic exchange of financial information in various jurisdictions.

In this article we present a summary of the peer review findings and recommendations contained in the Report regarding the implementation of the Common Reporting Standard for the Automatic Exchange of Financial Information ("the Standard") in Russia.

Background

The Standard was developed by the OECD in conjunction with G20 countries and approved in 2014. It created a framework within which countries could automatically exchange tax and financial information with those jurisdictions with which appropriate agreements were in place.

Russia began implementing the automatic exchange of information in 2018.

At the end of 2022 the Federal Tax Service issued Order No. YeD-7−17/986@ of 28 October 2022 approving a new list of states and territories with which Russia carries out the automatic exchange of financial information. Switzerland and the Cayman Islands have been dropped from the list, while Kazakhstan, the Maldives and Oman have been added. The updated list therefore comprises 96 countries and territories which are prepared to automatically exchange financial information with Russia.

Findings of the peer reviews

The peer reviews found that the process of the automatic exchange of financial information in Russia is broadly consistent with the requirements of the Standard, but that some improvements are needed. In particular, Russia has concluded automatic exchange agreements with interested jurisdictions and put them into effect without undue delay, and the actual exchange of financial information proceeds in accordance with the requirements of model agreements established by the OECD.

Nevertheless, the experts noted some areas of inconsistency between Russian legislation[1] and the Standard and give the following recommendations:

• Broaden the definition of "financial assets", which is presented in Article 142.1 of the Tax Code of the Russian Federation in the form of an exhaustive list. The experts point out that this approach to formulating the definition is at odds with the way the equivalent term is presented in the Standard and recommend using an inclusive approach in formulating it.
• Amend legislation to incorporate a definition of Reporting Financial Institutions, and particularly Participating Jurisdiction Financial Institutions.
• Bring the definition of "change of circumstances" into line with the definition provided in the Standard. As of November 2022, the definition of "change of circumstances" contained in the Russian Tax Code is limited to circumstances that result or may result in a change of tax residence, while the Standard gives a broader definition.
• Amend the Tax Code to include a definition of "Account Holder" in accordance with the Standard.
• Amend legislation to establish measures to prevent attempts by financial institutions to circumvent proper tax due diligence and reporting procedures, as well as sanctions on account holders and controlling persons for the provision of false information.

It is worth pointing out that similar conclusions and recommendations were also contained in the 2020 and 2021 Reports on the peer review of the automatic exchange of financial information, but they have still not been implemented in domestic legislation.

We will continue to monitor developments in this area.