Not just OnlyFans: How the Tax Authority learns about the foreign income of Ukrainians.

How does the Ukrainian Tax Service become aware of its citizens' foreign income, who is in the "risk group," and does the government have effective tools for enforcing tax payments? – read the review by RBC-Ukraine journalist Ruslan Kislyak.

The sensational tax-crime story involving Ukrainian models collaborating with the international platform OnlyFans has, among other things, showcased the domestic Tax Service's determination to pursue untaxed income of Ukrainian citizens worldwide. In the context of war, this pursuit seems entirely justified. Moreover, it is (un)surprising that only the war prompted the Ukrainian authorities to exhibit signs of political will to enforce tax compliance.

Consciously omitting the criminal law aspect related to the legalization of businesses like OnlyFans in Ukraine, we note that, according to data released by the head of the parliamentary committee on finance, tax, and customs policy, Daniil Getmantsev, as of December 18, 350 Ukrainian OnlyFans models have filed declarations of their property status and income, declaring 305.4 million UAH in earnings. They have paid 59 million UAH in personal income tax and military fees. And, as the politician noted back in September, when the Tax Service first publicly announced its intention to "tax" all domestic workers on this international platform providing adult entertainment services, this was just the beginning of a significant tax campaign against Ukrainians earning income from abroad.

Therefore, let’s try to figure out what awaits Ukrainians who have financial inflows from abroad, who these individuals are, how the Tax Service knows about them, and what they should do next.

How the Tax Service knows about Ukrainians’ foreign income

On August 19, 2022, the State Tax Service of Ukraine signed a so-called Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (CRS), which provides for the annual automatic exchange of information regarding citizens' financial accounts between competent authorities of different countries.

Under the terms of the agreement, Ukraine receives information from other states about accounts opened by Ukrainian citizens and companies that are tax residents of Ukraine, while other states receive corresponding information about their tax residents from Ukraine. Financial institutions collect the information on accounts to be exchanged and report it to the tax authorities in their respective countries. The exchange of information between states occurs at the level of tax services. Currently, Ukraine exchanges tax information with 118 countries, states acting executive director of the Independent Association of Banks of Ukraine, Dmitry Glinsky.

The first successful exchange of information with other countries under the CRS agreement was completed on September 30, 2024. The information covered the period from July 1 to December 31, 2023, according to a statement on the Ministry of Finance's website. As of December 1, according to data released by Daniil Getmantsev, Ukraine has already received reports on 500,000 accounts of Ukrainian citizens abroad with amounts exceeding 200,000 euros each.

According to Daniil Getmantsev, Ukraine is already exchanging tax information with other countries (photo: Vitaliy Nosach / RBC-Ukraine)

Additionally, the tax authorities of Ukraine can obtain information about foreign income of Ukrainian residents using the Convention on Mutual Administrative Assistance in Tax Matters. The State Tax Service of Ukraine utilizes this mechanism to send requests for information from the tax authorities of other countries, explains Alexander Boboshko, a partner in tax consulting at KPMG in Ukraine.

Among the sources of information for the Ukrainian Tax Service, managing lawyer at Arzinger, Denis Ersoy, also mentions the detailed financial reporting that Ukrainian owners of foreign businesses must submit starting in 2023, alongside CFC reporting (Controlled Foreign Companies) to the Ukrainian Tax Service.

Moreover, the Ukrainian Tax Service can independently initiate and send targeted requests to its counterparts in various countries for information. The OnlyFans case is one such example.

Finally, although it is not common, foreign financial monitoring authorities occasionally voluntarily provide Ukrainian colleagues with information about Ukrainian citizens.

At the same time, warns partner and head of the "International Taxation" and Deloitte Private practice in Ukraine, Andrey Servetnik, it is essential to understand that Ukraine has the right to tax only individuals who are "tax residents" for that specific tax year (e.g., in 2024). These can be both Ukrainian citizens and foreigners. However, the income of Ukrainians living abroad and not being tax residents of Ukraine should not concern the Ukrainian tax authorities.

"If an individual, while holding Ukrainian citizenship, is a tax resident of another country and can prove it, then there are no legal grounds to compel them to pay taxes on foreign income in Ukraine. Any dispute that may arise would need to be resolved and proven in court. At the same time, the individual must prove their status as a tax resident of another state," – explains Natalia Kurilenko, a member of the Ukrainian Bar Association, head of tax practice, auditor, and lawyer at AK "Sokolovsky and Partners."

For legal entities that are tax residents of Ukraine, certain types of income may also not be subject to taxation in Ukraine in accordance with double taxation treaties.

It’s also clear that tax authorities "see" foreign income of Ukrainian residents that is deposited into accounts in Ukrainian banks; for instance, this could be salary payments from foreign employers or dividends.

Another important nuance is that the tax authorities of Ukraine receive information about the account balances of Ukrainian individuals and legal entities if their companies abroad are considered "passive," meaning they receive passive income such as royalties, dividends, or interest, adds Ivan Marinyuk, head of tax law practice at YF "Ilyashev and Partners."

What information about Ukrainians' foreign income does the Tax Service "see"

Under the aforementioned CRS agreement, the Ukrainian Tax Service receives the following information from the tax authorities of other countries regarding Ukrainians earning abroad:

• names, addresses, taxpayer identification numbers, dates and places of birth;
• account numbers;
• the name and identification number of the financial organization;
• the balance or value of the account as of the end of the reporting period or, if the account was closed during that year or period, at the time of account closure;
• income generated by such account (e.g., interest).

What are the consequences of tax non-payment

It is important to understand that having an account abroad with funds does not automatically indicate a violation of tax payment requirements in Ukraine. However, the Tax Service can cross-reference this information with declared income and tax payments, and if necessary, seek clarifications from the individual, explains Dmitry Glinsky from NABU.

If the Tax Service gathers evidence of tax non-payment on foreign income, typically, taxpayers are first sent a request for clarification. If the taxpayer ignores this request or provides unsatisfactory responses, the Tax Service may initiate an audit, warns Denis Ersoy from Arzinger. Based on the audit results, the taxpayer may face additional tax assessments and penalties, and if these are not paid, interest will accrue. Additionally, the taxpayer's assets, including funds in accounts, may be placed in a tax lien and later seized through the courts to settle the tax debt.

Sooner or later, tax non-payment will have to be repaid in full (photo: freepik.com)

"In cases where tax non-payment from foreign income is established, tax authorities will assess tax liabilities and impose penalties, as well as set a deadline for payment. Once the amounts of obligations are confirmed (including after the completion of any appeal process against the tax assessments, if such appeals are made), a tax debt may arise for the taxpayer," warns Ivan Marinyuk from YF "Ilyashev and Partners."

To recover the taxpayer's tax obligations, the Tax Service may impose a tax lien or arrest the taxpayer's assets (depending on the taxpayer's behavior), and in the future, recover funds from accounts or satisfy its claims through the sale of assets under tax lien. In this case, the debtor will not be able to freely dispose of their assets that are under tax lien or subject to tax arrest.

"In practice, the mechanisms for recovering tax debts are quite effective, and their implementation depends on the activity or interest of the Tax Service," summarizes the spokesperson for RBC-Ukraine.

As a result, tax discipline violators will ultimately be