Posts tagged "AEOI"

Overview of the Automatic Exchange of Information (AEOI) Process

Since 2017, Swiss banks have been conducting Automatic Exchange of Information (AEOI) with their foreign counterparts. Read on to learn how it works. 

AEOI: What is it?

The AEOI standard specifies how tax authorities in participating countries exchange data about taxpayers’ cash and custody accounts. Tax transparency is the purpose of the standard. Over 100 countries and jurisdictions, including G20 and OECD member states, have committed to implementing AEOI. However, one exception to this rule is the FATCA standard, which is unique to the US.

AEOI: How it works

AEOI requires a financial institution in country B to report to the national tax authority in country A information regarding cash and custody accounts held by customers in country A. This information is then sent to the tax authority in country A, which compares it against the customers’ returns. Consequently, information is reciprocally flowing between AEOI partners, creating a global information-sharing network. 

AEOI has been adopted as the norm

Switzerland is particularly affected by AEOI because it is an international financial center that serves customers worldwide. To ensure compliance with the latest international standards, AEOI was fully implemented. Banks and their customers have thus become accustomed to sharing data across borders.

Since 2018, Switzerland has been sharing information with AEOI partner states on millions of cash and custody accounts. AEOI agreements are now in place with approximately 100 countries, and its network continues to expand. Once additional states meet the international AEOI requirements, information will be shared with them.

AEOI review and refinement

The fact that AEOI has become a global norm makes Swiss financial centers even more sensitive to ensuring a level playing field relative to their rivals. In the context of greater tax transparency, however, special attention must be paid to laws protecting confidentiality, data privacy, legal certainty, and specialization. To ensure a level playing field, the Global Forum of the OECD reviews all participating members and makes recommendations.

During its first review of AEOI implementation, the Global Forum rated Switzerland as generally good but recommended improvements in some areas. Switzerland has since modified its legal basis for AEOI (the AEOI Act and Ordinance), in response to the Global Forum’s recommendations. During the SBA’s argument, it succeeded in minimizing the impact of the amendments on banks. These amendments became effective on 1 January 2021.

An overview of AEOI’s legal foundation

Four elements make up the AEOI standard, which is set out in the OECD’s Standard for the Automatic Exchange of Financial Account Information in Tax Matters. 

  • A treaty or intergovernmental agreement 
  • Common Reporting Standard(CRS) 
  • The commentaries 
  • Implementation Guide 

Translated into Swiss law

To become applicable to Switzerland’s banks and tax authorities, the AEOI standard needs to be incorporated into Swiss national law and other regulations. These include:

  AEOI Ordinance (AEOIO), which became effective on 1 January 2021;

  • Amendments to the AEOI Act, effective 1 January 2021;
  • FTA technical guidelines defining IT requirements.
  • Updated FTA Guidelines on AEOI, which provide nearly 180 pages of details on how financial institutions should implement AEOI;

Qualification Committee for AEOI 

To jointly implement the AEOI standard, the AEOI Qualification Committee was established to facilitate dialogue between the tax authorities and the financial sector. It explains how Swiss AEOI rules are interpreted and standardizes the implementation of those rules.

The Federal Tax Administration (FTA) and the State Secretariat for International Finance (SIF) lead the AEOI Qualification Committee. Also involved are several organizations from affected sectors, including the Small Business Administration.