How tax information is exchanged with other countries

The Procedure for the Exchange of Tax Information with the Competent Authorities of Foreign Countries was approved by Order of the Ministry of Finance of Ukraine No. 118 dated 16.04.2022.

The Procedure No. 118 is aimed at ensuring the effective exchange of tax information with the competent authorities of foreign countries upon special requests for tax information (hereinafter - special request), as well as within the framework of spontaneous exchange of tax information that is necessary or foreseeably relevant for the implementation or application of the legislation of Ukraine or other countries in respect of taxes covered by the Convention on Mutual Administrative Assistance in Tax Matters, ratified by the Law of Ukraine No. 677-VI dated December 17, 2008 and

For the purposes of Procedure No. 118, the term "special request" means a request for information regarding specific persons or transactions that is necessary or may be relevant for the implementation or application of the provisions of national legislation or international treaties. A special request may be sent by the STS to a foreign competent authority or by a foreign competent authority to the STS (paragraph one, clause 3, section I, Procedure No. 118).
The initiators of a special request may be structural units of the STS, as well as the main departments of the STS in the regions, the city of Kyiv, interregional departments of the STS for work with large taxpayers (clause 4, section I, Procedure No. 118).

The main executor of the special request is the structural unit of the STS that exchanges tax information with the competent authorities of foreign countries (first paragraph of clause 5 of section I of Procedure No. 118).

In accordance with clause 6 of Section I of Procedure No. 118, special requests are fulfilled by the STS only if there are international agreements.

Conducting foreign economic activity by a resident company is not a ground for sending a special request.

The need to obtain certain information should be based on the fact that the facts contained in the case description, which is an integral part of the special request, indicate the taxpayer's actions/inactions that led or may lead to tax losses and/or unlawful application of tax exemption or reduced tax rate.

Such facts should indicate that the requested information will help determine whether the taxpayer(s) violated the laws of Ukraine and international treaties.

Paragraph 8 of Section I of Procedure No. 118 stipulates that a special request is prepared in the following cases:
1) the analysis of the tax returns of the business entity (its branch, representative office, etc.) indicates that the taxpayer may have understated its corporate income tax and/or personal income tax liabilities when making payments to non-residents by unlawfully applying tax exemptions or reduced tax rates provided for by international treaties of Ukraine for the avoidance of double taxation;
2) the facts indicate that the necessary information is located outside Ukraine, and in the course of inspections and/or reconciliations of taxpayers within the framework of tax control, there is a need to confirm the accuracy of such information, in particular in the case of establishing overdue receivables from a non-resident to a resident;
3) there is a suspicion that payments made in favor of a resident of another state were not declared;
4) payments were made to a resident of another state that has the characteristics of a company that:
acts only as an intermediary in the interests of another person - the beneficial owner of the income;
does not declare income and does not submit financial statements;
is subject to preferential tax treatment in accordance with the country's domestic preferential tax regimes;
5) there is a discrepancy between the quantitative or other indicators of the customs declaration and the actual goods received (imported) or shipped (exported);
6) the facts indicate the transfer of funds outside of Ukraine for the purpose of further legalization (laundering) of the proceeds of crime;
7) there is a need to obtain information on transfer pricing control;
8) in other cases when the STS needs to receive information from the competent authorities of foreign countries in order to implement or apply the provisions of Ukrainian legislation or international treaties.

The mandatory details to be included in the request sent to the competent authority of foreign countries are set forth in clause 1 of section II of Procedure No. 118.

The form and content of a special request received from abroad are established by the relevant international treaty of Ukraine (clause 1, section 1, section III of Procedure No. 118).

Pursuant to paragraphs three and four of Section 5 of Section III of Procedure No. 118, unless otherwise specified in the letter, a special request shall be fulfilled within forty-five days from the date of receipt of the letter.

If during the execution of the task there are difficulties with obtaining the necessary information, the term of the task may be extended, provided that the relevant structural unit or territorial body of the STS submits to the chief executor of the special request to the STS an explanation of the difficulties and reasonable proposals for an additional term required to complete the task. The total term of the task cannot exceed four months from the date of its receipt by the relevant structural unit of the STS or territorial body of the STS.

In accordance with paragraph 1 of Section V of Procedure No. 118, structural subdivisions of the STS and territorial bodies of the STS take measures to collect and ensure the transfer to the competent authorities of foreign countries of information available in the tax authorities of Ukraine on their own initiative without a prior request for information in the following cases:

• a structural unit of the STS or a territorial body of the STS has grounds to believe that the tax has not been paid or paid in full in the territory of another country;
• the taxpayer enjoys full or partial exemption from taxation of income in Ukraine, which may lead to an increase in the amount of tax or to taxation in another country;
• business transactions between a taxpayer of Ukraine and a taxpayer of another country are carried out through one or more countries in such a way that it may lead to a reduction of the tax amount in Ukraine and/or another country;
• a structural unit or territorial body of the STS has grounds to believe that the tax amount may be reduced as a result of artificial transfer of profits between related companies;
• information provided to the STS by the competent authority of a foreign country allowed the structural unit of the STS or a territorial body of the STS to obtain information that may be useful for determining the amount of tax in the territory of such foreign country;
• the structural unit of the STS or the territorial body of the STS has other information that may be useful to the tax authorities of another country.