Exploring Automatic Exchange of Tax Information
Financial data


In the upcoming edition of WSBI-ESBG​ News & Views​, banking policy expert Johanna Hellstrom digs into the issues facing those banks that must comply with Automatic Exchange of Tax Information (AEOI).​








BRUSSELS, 28 August 2015 – ​​​​​​​​​​The timelines for the implementation of Automatic Exchange of Tax Information (AEOI) standards are challenging and the client due diligence and reporting requirements are extensive, resulting in increased pressure, both on operational and technical resources for financial institutions in participating countries.

AEOI was brought into international focus by the introduction of the US Foreign Account Tax Compliance Act (FATCA) 2010 and expanded with the Common Reporting Standard (CRS). The CRS and AEOI – as developed by the Organisation for Economic Cooperation and Development (OECD) – together with FATCA are becoming a key challenge for financial institutions.

That said, most market participants agree that it is important increase transparency and limit tax evasion, while preserving data protection legislation and the rights of the individual. It is in the shared interest of all countries and their residents to maintain the integrity of the fiscal system.
AEOI refers to the unprompted exchange of defined categories of data. Within the CRS these categories relate to financial account information. Unprompted exchange does not, however, mean that the information will be sent on a continuous basis but at a set date without the need for the receiving tax authority to request the data.

The nuts and bolts of it

The global standard from the OECD consists of the CRS, a model Competent Authority Agreement (CAA), and a detailed explanatory commentary accompanying the standard. The CAA is a contract that links the CRS and the legal basis for the exchange (this could for example be a bilateral tax treaty) and facilitates the actual exchange.

The CRS contains the actual reporting and due diligence standard. The financial institutions that are obliged to report data include custodial institutions, depository institutions, investment entities, and certain insurance companies.

The information relating to reportable accounts to be exchanged within the CRS on an annual basis falls within six categories: interest, dividends, account balance or value, income from certain insurance products, sales proceeds from financial assets, and other income generated with respect to assets held in the account or payments made with respect to an account. The accounts of both entities and individuals can be reported, and the CRS requires institutions to look through so-called passive entities to identify any reportable controlling persons.

Outstanding issues before implementation

There are several issues on which the industry needs clarification before it will be ready to exchange information according to the CRS, both within the EU and further afield. It is very important that national guidance is published as early as possible ahead of the implementation.

Data protection is another area where there are, at present, many question marks. National data protection legislation in several Member States does not correspond well to the automatic exchange of financial account information with other jurisdictions. Many observers are asking whether it is preferable to break national data protection legislation or to fail to adhere to the CRS, as the two are not currently compatible. Clearly, the answer is that both should be adhered to, but an answer as to how this will be possible is needed urgently as the deadline for the first data exchange is approaching fast.

According to FATCA, taxpayers with a total value of specified foreign financial assets below a certain threshold are not reportable. If the total value is at or below $50,000 at the end of the tax year, there is no reporting requirement for the year, unless the total value was more than $75,000 at any time during the tax year. For US citizens resident outside the US this threshold is even higher. There is no threshold for individuals within the CRS. It is evident that the lack of a threshold will significantly increase the identification of reportable accounts and enable the exchange of a much larger data volume. This will most likely become a very relevant issue for the recipient tax authority, which will need to analyse the transmitted data annually. One may question whether this is appropriate, and the compatibility with data protection legislation arises here too. It appears disproportionate to exchange information across jurisdictions on minimal amounts. 

The way forward

The key message going forward is to avoid a proliferation of standards. The CRS should form the basis for global multilateral AEOI. It is very important that sufficient support is given to developing countries that wish to participate in AEOI, for example in regards to capacity building and data-mining. That said, existing national legislation and standards must be considered to ensure that financial institutions are not put in a position where they have to risk breaking local or EU law. With the very tight deadline ahead of implementation, there must be an open ongoing exchange between international organisations, national tax authorities, and the financial industry. The common goal is to reduce tax evasion and tax avoidance. This can only be achieved by clear and harmonised rules applicable worldwide.

For more information on Automatic Exchange of Tax Information regulation and systems, please read the full article Automatic Exchange of Tax Information​ located on the WSBI-ESBG website.

ends / all

Automatic exchange of information; Taxation; Supervision; Regulation