Automatic+Exchange+of+Information+(OECD)


 * Automatic Exchange of Information **

Automatic exchange of information (AEI) is a process with “systematic and periodic transmission of “bulk” taxpayer information by the source country to the residence country concerning various categories of income (//e.g.// dividends, interest, royalties, salaries, pensions, etc.). The process is also called routine exchange. The taxpayer information is collected routinely by the source country. The payer of the payments (e.g. employer) often does the act of reporting. Furthermore, also other kind of information can be exchanged, such as e.g. changes of residence and purchase/disposition of immovable property. This results in that the residence country can verify if the taxpayers have accurately reported their foreign income. AEI is implemented both in and outside of the EU and in 38 countries all together (see figure 2).
 * What is Automatic Exchange of Information? **

 **Why is it needed? **  AEI is needed in order to facilitate the work of tax administrations and to ensure that the right amount of taxes is paid in each country. The globalization of the world has resulted in more and more cross-border activities, which emphasizes the need of AEI.

 **The OECD’s role in AEI **  The OECD (Organisation for Economic Co-operation and Development) has facilitated the implementation and development of AEI. The organization has supported countries that want to use it as a voluntary compliance tool. It has created the legal framework and developed technical standards and done improvements on a practical level. Work regarding the confidentiality matters have also been done. The OECD has also worked together with Global Forum on Transparency and Exchange of Information with the matter**.

 AEI counters offshore non-compliance, e.g. it can help to detect cases of non-compliance by taxpayers that don’t have previous records of such activity. Furthermore, it has an deterrent effect as it increases voluntary tax compliance, i.e. decreases tax evasion. It also educates taxpayers on their reporting obligations. These factors lead to increased tax revenues, which leads to increased fairness in the society. According to research 75% of taxpayers may not fulfill their residence country tax obligations when a system of automatic exchange of information is not present.
 * Benefits with AEI? **

 ** Challenges to address? ** **  AEI still has some challenges to address in order to become even more effective. These are some examples; developing common standards on capturing information, improving data quality, improving timely receipt of information and standardizing technical formats and investment in IT. Furthermore, AEI under the Savings Tax Directive (EUSTD) in EU does not cover companies and trusts and dividends, royalties and capital gains. In addition, Austria and Luxemburg are under a transitional regime based on withholding tax. However, AEI under Foreign Account Tax Compliance Act (FATCA) in the US includes companies. This has certain benefits, e.g. competitors do not attain a unfair tax advantages and companies that operate in less industrialized countries benefit from better conditions in society due to more tax revenue. If a global standard would be reached, it could lead to less tax evasion in companies. AEI has been criticized because of the fact that no penalties are imposed if reporting requirements not met. The issue of matching the information that is shared to the country’s own records is also present, so that the receiving country can make full use of the information.

<span style="font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 0px; overflow: hidden;">

<span style="font-family: 'Times New Roman',serif; font-size: 12pt;"> Figure 1: The process of AEI. (Source: OECD )

<span style="font-family: 'Times New Roman',serif; font-size: 12pt;"> <span style="font-family: 'Times New Roman',serif; font-size: 12pt;"> <span style="font-family: 'Times New Roman',serif; font-size: 11pt; line-height: 1.5;">Figure 2: AEI relationships - Information sent automatically to number of countries by the above. (Source OECD <span style="font-family: 'Times New Roman',serif; font-size: 11pt; line-height: 1.5;"> )