Ukrainian Revenue Ministry to Exchange Information with Secrecy Jurisdictions ~ U-Tax Blog

Wednesday, January 29, 2014

Ukrainian Revenue Ministry to Exchange Information with Secrecy Jurisdictions

The Ukrainian Revenue Ministry enjoys an opportunity to exchange tax information with the most popular "tax havens/secrecy jurisdictions" (the British Virgin Islands, Belize, the Isle of Man, Gibraltar, etc.)

These opportunities opened to the Revenue Ministry by the recent ratification of the Convention on Mutual Administrative Assistance in Tax Matters (hereinafter – the "Convention") by the Government of Belize as well as the extension of its application by the United Kingdom and the Netherlands to a number of their overseas territories. In addition, the Convention has been already signed, but not yet ratified by such popular secrecy jurisdictions as Switzerland, Luxembourg and Liechtenstein.

(for dependent territories only)
(according to
The Netherlands
1 September 2013

1 September 2013
The Bermudas
The UK
1 March 2014
The British Virgin Islands
The UK
1 March 2014
The UK
1 March 2014
The Cayman Islands
The UK
1 January 2014

Signed on 21 November 2013
(not ratified yet)

Signed on 29 May 2013
(not ratified yet)
The Isle of Man
The UK
1 March 2014

Signed on 15 October 2013
(not ratified yet)

What follows is the possible ways of exchanging information in accordance with the Convention:

Exchange of information on request - information is being made available to the Revenue Ministry based on its request.

Automatic exchange of informationthe Revenue Ministry and revenue authorities of a secret jurisdiction exchange certain information automatically. In order for this to work, the relevant procedures should be agreed on by the parties. It seems to be clear that such procedures are not agreed on yet.

Spontaneous exchange of informationthe revenue authority of a secret jurisdiction detects certain activity that may adversely affect the tax revenues in Ukraine and forwards the respective information to the Revenue Ministry.

Simultaneous tax examinationsthe Revenue Ministry and the revenue authority of a secrecy jurisdiction conduct simultaneous examination of certain taxpayers. To make this possible, there must be relevant procedures approved. Such procedures are not approved yet.

Tax examinations abroadthe representatives of the Revenue Ministry are eligible, subject to the permission of the revenue authority of a secrecy jurisdiction, to take part in tax examinations conducted in such a jurisdiction.

Further to the exchange of information, the Convention enables the Revenue Ministry:

- To recover tax claims abroad (for example, where a secrecy jurisdiction-resident carries out its activities in Ukraine making up a permanent establishment without the registration of it with the tax authorities and accounting for corporate income tax);

- To forward documents for servicing them upon residents of secrecy jurisdictions.

Expectations and prospects. A great deal will depend on the approach of secrecy jurisdictions to exchange of information (on the one hand, there is an obligation to stick to their international commitments, on the other hand, they clearly understand that active disclosure could lead to an outflow of clients interested in their services).

In this context, it is worth mentioning the case of MH Investments and JA Investments v Cayman Islands Tax Information Authority decided in September 2013 by the Cayman Islands Grand Court.

The Australian Taxation Office asked the Tax Information Authority of the Cayman Islands to provide information on companies whose ultimate beneficial owners allegedly were two Australian accountants. The purpose of the request was to confirm the connection of the aforesaid accountants to such companies and issue them with additional tax charges based in light of this fact. The request was made based on a tax information exchange agreement between the Cayman Islands and Australia (very similar in nature to the Convention).

The Tax Information Authority of the Cayman Islands complied with the request. The requested information was demanded from the registered agent and given to the Australian Taxation Office.

Cayman-registered companies that were subject to the information request believed that the information had been provided in violation of the established procedures. They appealed to the court so as to compel the Tax Information Authority of the Cayman Islands to withdraw the information from the Australian Taxation Office. At the hearings, the court found the violations of procedures and allowed the claim. The violations include, among other things, as follows:

- Providing information for a period not covered by the agreement on exchange of information;

- Failure to obtain a prior consent of the court of the Cayman Islands for the use of the information during court proceedings in Australia;

- Failure to notify the companies of the informational request (in accordance with the domestic laws of the Cayman Islands the provision of information without the knowledge of the companies concerned is only possible for criminal matters, which was not the case in the situation in question).

Interestingly, the Australian Taxation Office ignored the judgment of the Cayman Islands Grand Court. They appealed to the Australian court with a request to permit the use of the information obtained from the Cayman colleagues in their tax evasion proceedings. In October 2013 the Australian Federal Court allowed the claim.

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