Automatic Exchange of Information

 

The new global standard on Automatic Exchange of Information (AEOI) reduces the possibility for tax evasion. It provides for the exchange of non-resident financial account information with the tax authorities in the account holders’ country of residence. Participating jurisdictions that implement AEOI send and receive pre-agreed information each year, without having to send a specific request.

AEOI will enable the discovery of formerly undetected tax evasion.  It will enable governments to recover tax revenue lost to non-compliant taxpayers, and will further strengthen international efforts to increase transparency, cooperation, and accountability among financial institutions and tax administrations. Additionally, AEOI will generate secondary benefits by increasing voluntary disclosures of concealed assets and by encouraging taxpayers to report all relevant information.

As new information is brought to light by AEOI, the importance of the current standard of Exchange of Information on Request (EOIR) will also increase. The two standards of AEOI and EOIR are therefore complementary, working together to enhance the effectiveness of tax administrations’ efforts in addressing international tax evasion. 

 

 

 

 

The cover of the Standard for Automatic Exchange of Financial Account Information

 

 

A Global Standard on AEOI

In order to most effectively tackle tax evasion while minimising costs to governments and business, a single global AEOI standard for financial account information has been created: the Standard for Automatic Exchange of Financial Account Information in Tax Matters. The OECD and G20 developed the Standard with the input of other jurisdictions and in consultation with the financial industry. The Standard is very similar to the Model 1 IGA that many jurisdictions will use for implementing the United States Foreign Account Taxpayer Compliance Act (FATCA).

The Standard requires financial institutions to report information on accounts held by non-resident individuals and entities (including trusts and foundations) to their tax administration. The tax administration then securely transmits the information to the account holders’ countries of residence on an annual basis.

The Standard specifies the financial account information to be exchanged, the financial institutions that need to report, and the different types of accounts and taxpayers covered. To capture a wide range of information, the Standard requires not only deposit-taking banks to report, but also custodial institutions, certain investment entities, and certain insurance companies. The type of account information to be reported on includes account balances, interest, dividends, and sale and redemption proceeds from financial assets.

In order to ensure that the information is accurate and complete, the Standard also specifies the information gathering procedures to be followed by financial institutions, and these procedures draw on the existing international anti-money laundering standards.

Confidentiality, data safeguards and proper use of the information is critical, and the Standard sets out clear requirements that must be met by all jurisdictions participating in AEOI.

The Standard also includes a model agreement for government authorities to use to operationalise the automatic exchanges and a technical user guide to ensure the information is reported in a standardised format.

 

Implementation of the new Standard

The global implementation of AEOI is an essential step for stimulating the development of a global level playing field; in other words, global implementation is essential to effectively tackle evasion as well as to ensure jurisdictions are on an even footing.

A large number of jurisdictions have announced their plan to implement the new Standard. Around 50 jurisdictions will work towards having their first information exchanges by September 2017; and many more will follow in 2018. These commitments can be found in the Early Adopters Statement, the OECD Declaration on Automatic Exchange of Information in Tax Matters and the G20 Finance Ministers and Central Bank Governors’ Communiqué. To bring these initiatives together, the Global Forum has undertaken a commitment process to ascertain its members’ implementation timelines. A majority of Global Forum members have indicated their commitment to exchanging on the 2017 or 2018 timeline. 

While all countries are invited to join the new standard, the G20 and the Global Forum recognise that some developing countries facing serious capacity constraints will not have the resources to implement it on the same timeline as other countries. A number of Global Forum members that are developing countries, but do not have financial centres, were therefore invited, but not required to join the 2017 / 2018 implementation timeline. These countries will be the particular focus of efforts at capacity building, including the conduct of pilot projects described below.   

 

The role of the Global Forum

The Global Forum has two key streams of work in relation to the new Standard on AEOI: monitoring its implementation, and helping developing countries to benefit from it.

To undertake this work, the Global Forum established its AEOI Group. Formed in 2013 as a voluntary working group, its membership currently comprises almost 60 Global Forum jurisdictions and three Global Forum observers. The Group holds regular meetings and reports to the Global Forum plenary. 

The Group is tasked with creating a mechanism for monitoring and reviewing the implementation of the new Standard. As noted above, the monitoring of implementation is underway, with a report on jurisdictions that have committed to the new Standard provided to the Global Forum plenary in October 2014. To monitor implementation of the Standard, the AEOI Group is creating a peer review process. Work has commenced for the creation of new Terms of Reference and a new Methodology, which will allow for Global Forum member and relevant non-member jurisdictions to be evaluated for the effectiveness of the implementation, including the meeting of confidentiality and data safeguard requirements. These reviews will ensure a globally consistent implementation of the Standard.

The AEOI Group will also work to ensure that developing countries can benefit from the new Standard. In doing so, it will draw on the Roadmap for developing country participation in the new Standard, which was prepared by the Global Forum Secretariat for the  G20 Development Working Group. The Roadmap, which draws on extensive consultations with developing countries, the World Bank Group, international organisations and civil society, identifies the costs, benefits and challenges for developing countries to implement the new Standard. It outlines the necessary foundations for implementing the new Standard, and recommends that pilot projects be undertaken with developing countries to assist with effective implementation. These pilot projects will be facilitated by the Global Forum, with the input of the World Bank Group and G20 and other countries, commencing in 2015.  

The Global Forum is working with the OECD to create resource and training materials, and to hold training events, to support jurisdictions to implement the new Standard. The first AEOI training seminar will be held in Mexico in December 2014. 

 

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