What is the Automatic Exchange Of Information (AEOI)?

0
412

The Automatic Exchange Of Information is an agreement among governments around the world to share non-resident financial account information to reduce the possibility and ability of nefarious people to engage in tax evasion. The Automatic Exchange Of Information requires banking officials to send a foreign account holders’ financial information to the tax authorities in their country of residence. The information does not have to be requested. The pre-arrangement among AEOI participating governments call for the account information to be sent automatically each year.

Discovering Previously Undetected Tax Evasion

The goal of the Automatic Exchange of Information is to enable governments to discover instances of attempted tax evasion that would previously have gone undetected. In the past, individuals, businesses and corporations could avoid paying tax on a great deal of their income each year by depositing it in bank accounts in foreign countries. Many foreign banks gladly accepted these deposits from foreign nationals and allowed themselves to be used as tax shelters unwittingly. Putting money in foreign banks also served as a way for criminals to launder money.

Recovering Lost Tax Revenue

With the inception of the Automatic Exchange of Information agreement, governments can now recover lost tax revenue from non-compliant taxpayers in participating jurisdictions. Governments around the world have been sharing financial information on foreign nationals for some time. In 2010, the United States imposed the Foreign Account Tax Compliance Act. The rules of the FATCA called for non-US financial institutions to provide US tax authorities with key information on US account-holders so the IRS could collect the taxes they owe on overseas deposits in foreign banks.

Adopting The Automatic Exchange of Information Agreement

In January 2016, countries in the European Union and the United Kingdom adopted the Automatic Exchange of Information agreement. By 2018, more than 89 countries around the world had signed on to the agreement and were sharing account information of foreign nationals with the taxation arms of their governments. The AEOI is now widely practiced and has become a very effective tool for use in countering offshore tax evasion. There is now a legal framework and technical standards for the practical application of this system for the sharing of the financial information of people attempting to evade paying taxes by putting their money in foreign financial institutions.

Strong G20 And G8 Support

The G20 and G8 countries, working closely with other stakeholders around the world have created a model for standardized automatic financial information exchange that reduces cost and maximizes efficiency for both financial institutions and governments. It’s called the Standard for Automatic Exchange of Financial Account Information or simply ‘The Standard’. Following The Standard makes it easier for tax authorities for countries all over the globe to monitor and tax the millions of dollars its citizens attempt to hide by depositing it in foreign financial institutions.

An Intergovernmental Agreement

With the Automatic Exchange of Information agreement people and businesses trying to hide their taxable income can no longer exploit the disagreements among governments. The AEOI puts world governments in one accord in order for each country to get the tax payments to which they are entitled. With this intergovernmental agreement, criminals and tax cheats have fewer places to hide. A growing number of governments all over the world are embracing the Automatic Exchange of Information standards and policies because it can benefit their country’s economy and give them more resources to address their country’s needs.

A Dramatic Change

In the past, secrecy was the order of the day when it came to the banking information of foreign nationals. But as a growing number of entities continued to exploit that secrecy and hide billions of dollars in taxable revenue, global governments have come to see that level of financial secrecy as a liability. The move to automatically share the information on the financial accounts of foreign nationals with their governments is a dramatic change. One that has proven to be an effective way to thwart the formally lucrative activities of criminals and tax cheats and give governments more of the tax revenues to which they are entitled.

Establishing Automatic Exchange Relationships

The establishment of automatic exchange relationships is a process that owes a debt to many organizations. Groups like the Global Forum, the OECD, the G8 and G20 and governments in the EU, UK and USA, along with many other stakeholders, have worked tirelessly to forge relationships at the governmental level that make implementing the policies and procedures of the Automatic Exchange of Information possible and palatable for financial institutions around the world. Seeing how the AEOI benefits their mutual interests has made establishing the automatic exchange relationships easier.

Leveraging The AEOI

Each year, more governments and financial institutions in many countries have seen the wisdom and benefits of the AEOI and shown an interest in leveraging the opportunities for economic growth it offers. Many countries are opting to introduce similar rules and policies with other jurisdictions so they can establish and implement automatic exchange relationships. The success of the standardized automatic exchange model in repatriating billions of dollars in tax revenue to the appropriate tax authorities has made effectively leveraging the AEOI the goal of many governments.

Reducing Tax Evasion: A Worthy Goal

Reducing tax evasion and finding where criminals are hiding their ill-gotten monies are two worthy goals of the AEO agreement. Tax authorities and law enforcement official worldwide now have another effective tool for ferreting out the huge sums of money criminals and tax cheats attempt to squirrel away in foreign banks. A specific request for the financial information isn’t required to get the information on non-tax compliant account holders. The automatic transfer of this information further strengthens the efforts internationally to increase cooperation, accountability and transparency among tax administrations and financial institutions.

Exchange Of Information On Request

With the automatic and voluntary disclosure of financial assets required for countries who have adopted the AEOI to uncover criminals and non-compliant tax payers, it has become clear the current Exchange of Information on Request (EOIR) standards also need to be upgraded. The importance of the information these requests uncover for tax authorities and law enforcement organizations worldwide shows how pressing and relevant this action is. The AEOI and the EOIR are complementary and enhance tax authorities’ ability and effectiveness when addressing international tax evasion.

New Global AEOI Standards

The new AEOI standards make it possible for global governments to more effectively deal with tax evasion. By consulting with governments and financial institutions in a wide range of jurisdictions for input, implementing the new standards has been fast and easy. Information on accounts that are held by non-resident individuals, entities, trusts and foundations is swiftly and securely transmitted to the tax administrations in their home countries annually. It includes financial information from deposit-taking banks, custodial institutions, insurance companies and investment entities. The reports cover account balances, dividends, interest and the proceeds from the sale and redemption of financial assets.

Accurate And Complete Information

To ensure the information is accurate and complete, the information gathering procedures draw on existing anti-money laundering standards used internationally. Data safeguards, confidentiality and the information’s proper use is critical. All AEOI participating jurisdictions must adhere to all the requirements. ‌