FATCA in Russia
Like most aspects of the relationship shared between the United States and Russia, the current state of FATCA enforcement in the country was complicated and perhaps both more and less than it seems. From the outset in 2010, the Russian government was a harsh critic of the law, FATCA. At the time, the Russian Ministry of Finance and Rosfin monitoring criticized this law for its belief that it would compromise the independence of Russia’s domestic financial sector. In 2012, the law was criticized on the grounds that it was a violation of Russia’s banking laws and sovereignty. However, even after having these pronouncements, the Russian and American governments have quietly negotiated the implementation of FATCA.
However, a proposed agreement did fall apart amid the fallout of Russia’s 2014 annexation of Crimea. On the other hand, one day prior to the Russian financial system’s falling out of compliance with US Treasury standards, President, Vladimir Putin signed a law permitting Russian financial institutions. This would work towards sending the required information regarding the US-linked accounts to the IRS. Then in the year 2016, January, despite the Russian criticisms of FATCA, “Russian FATCA” was passed into law in December 2015. Thus, Russia seemed to have come around to the understanding of how offshore tax enforcement could benefit the nation’s coffers. However, it was still unclear how much assistance it would be willing to lend the United States in tracking down its tax evaders.
OECD Reporting System
Russia made an agreement to participate in the Organization for Economic Cooperation and Development’s (OCED) Common Reporting System (CRS). Consequently, the recent uncertainty regarding the exact level of thoroughness regarding Russian financial institution FATCA compliance might have been rendered largely moot. OCED’s CRS was modeled on FATCA. It provides for the automatic exchange of financial information among more than 95 nations and 82 nations that have become the signatories of the CRS Multilateral Competent Authority Agreement (MAA). Russia was then expected to begin collecting information regarding reporting foreign individuals and entities starting in 2017. Actual reporting did not begin until 2018 and hence, they did have enough time to correct their past mistakes regarding Russian accounts.
Under the law, Russia’s Federal Tax Service was asked to collect the required information reported by the Russian banks and financial institutions. Reported information was likely to be inclusive of the clients’ investment revenues, sales of shares, account balance, and percentages on deposits and obligations. Foreign companies that operated in Russia were also affected by the law provided the company operated through a subsidiary or branch which paid taxes in Russia. Anonymous trusts and holding companies were also likely to draw special scrutiny under this law.
On one hand, the United States was an OCED member nation and it was not a signatory for the Common Reporting Standards. However, the United States had indicated a willingness to share information of this type and already exchanges information with the vast majority of nations that have signed on to CRS. While the United States government has been tight-lipped about efforts they have taken to mesh together FATCA, CRS and other disclosure systems, the potential for such actions already exists. Furthermore, under the existing IGAs, the United States did agree to an automatic, reciprocal exchange of information with over 100 nations. Therefore, the information would be seen freely flowing between the systems despite a lack of formal U.S. entrance into CRS.