Automatic Exchange of Information (AEOI)

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What is AEOI?

The term Automatic Exchange of Information (AEoI) refers to the cross-border sharing of information by tax administrations. Various regulations facilitate this across the world.

The Foreign Account Tax Compliance Act (FATCA) and The Common Reporting Standard (CRS), which focus on the exchange of account holder information, are the most commonly recognised. FATCA is US law made into local law. The CRS is developed by the Organisation for Economic Co-operation and Development (OECD) and made into local law.

The Mandatory Disclosure Rules (MDR) differs to FATCA and CRS as it focuses on the exchange of information about products, deals and transactions. MDR comes from the OECD’s base erosion and profit shifting (BEPS) Action 12 recommendation.

What is the DAC?

The European Union (EU) and the United Kingdom (UK) have in place the Directive on Administrative Cooperation (DAC), which sets out rules related to taxation which all 28 jurisdictions (EU members + the UK) agree to follow. Since its creation, the DAC has been adjusted several times to include new regulations.

The CRS is referenced in DAC2 (chapter two). FATCA does not appear in the DAC as each of the 28 jurisdictions agrees separately with the United States on how they will comply with the requirements.

DAC6 (the latest chapter) is where the MDR is detailed. MDR was put in place to increase the level of transparency surrounding potential tax loopholes and aggressive tax practices that may circumnavigate the requirements of the CRS in DAC2.

Why do we need the AEOI?

The AEOI regulations aim to increase the level of tax compliance across the world.

How is it done?

FATCA and CRS: Aim to ensure that taxpayers correctly disclose all income and assets held in offshore accounts in their tax returns. They allow tax authorities to identify those who do not disclose all income correctly by comparing information shared from tax authorities to tax returns. This type of non-disclosure is known as (offshore) tax evasion.

MDR: There are more and more stories in the press highlighting taxpayers using loopholes or differences in tax systems to reduce their tax burden. MDR highlights the use of these methods mentioning that, while legal, these methods are increasingly frowned upon by society who expect all taxpayers to pay their fair share. The use of these methods is known as (aggressive) tax avoidance.

The following information relates to FATCA and CRS.

What are the differences between FATCA and CRS?

The major difference between the two is scope. FATCA requires financial institutions to identify and report offshore accounts held directly or indirectly by reportable US persons. CRS involves more than 100 countries who require information to be collected and reported about their tax residents.

The other main difference between the two is the determination of a reportable private individual. CRS looks at tax residence, this is in the most part derived from a person’s permanent residence, whereas FATCA looks at tax residence and citizenship, which includes those who do not reside in the US.

What is required by FATCA and CRS?

Both FATCA and CRS require global financial institutions, such as ING, to identify customers who hold accounts directly or indirectly in countries where they are not tax residents. Financial institutions do this by asking customers to complete a document called a ‘self-certificate’.

Financial institutions must report certain information provided by account holders to their local tax authority, who will pass this to the tax authority of the country where any reportable persons associated with the account are identified as tax residents.

For FATCA for example, this will mean sharing US taxpayer information from a jurisdiction's tax authorities with the United States tax authority (IRS) and vice versa.

What is a self-certificate?

A self-certificate contains all the information needed by ING to identify and report a customer.

Self-certificates may differ depending on the country / business asking for the information.

When is a self-certificate required?

ING will require customers to complete a self-certificate either when customers open a new account or when any reportable information held in an existing account changes.

What information is collected on a self-certificate for reporting?

The information collected differs for individuals and entities.

Information required from private individual account holders or controlling persons of a legal entity customer:

  • Name
  • Residence address
  • Date of birth
  • Country(ies) and Jurisdiction(s) of tax residence
  • Taxpayer identification number with respect to each tax residence(s) (if any)

Information required from legal entities:

  • Name
  • Registered address
  • Country(ies) and Jurisdiction(s) of tax residence
  • Taxpayer identification number with respect to each tax residence(s)
  • Entity Type
  • Controlling Person Type (associated to certain legal entity types)

In addition to this, ING will need to report the account balance or value as well as any paid interest or credits in the account for the calendar year by 31 December.

Will any information be reported without informing the customer?

ING’s policy is to contact reportable customers prior to any reporting.

For FATCA or CRS, customers will be given the opportunity to correct their CRS or FATCA classification prior to reporting them for the first time.

Reporting will be handled by each ING entity locally, in accordance with the rules applicable to FATCA and CRS in each host country.

What are the consequences for customers who do not provide the required information?

ING does not accept new customers or open new financial accounts for existing customers who do not provide the required information.

Financial accounts of existing customers who are continually non-responsive to requests for information may be restricted and eventually even closed. Local legal requirements prevail.

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