Automatic exchange of information (AEOI)
Swiss banks have been practising automatic exchange of information (AEOI) with their foreign counterparts since 2017. Find out how it works below.
What is AEOI?
AEOI is an international standard that governs how tax authorities in the participating countries exchange data relating to taxpayers’ cash and custody accounts. The goal is to ensure tax transparency between countries. The G20 and OECD member states, together with other key financial centres – over 100 countries and jurisdictions in total – have committed to implementing AEOI. The US, which has its own standard (FATCA), is the most significant exception.
How AEOI works
With AEOI, information regarding cash and custody accounts held by customers in country A with a financial institution in country B is first reported by this financial institution to the national tax authority of country B. The tax authority in country B then sends the information to the tax authority in country A, which compares it against the customers’ tax returns. The flow of information between AEOI partner states is thus based on reciprocity, creating a global information-sharing network. The video below explains in detail how the process works.
AEOI has become the norm
As a leading international financial centre with customers all over the world, Switzerland is particularly affected by AEOI. It has fully implemented AEOI in order to ensure that it meets the latest international standard. Sharing data across national borders has thus become the norm – for both the banks and their customers.
Switzerland has been sharing information on millions of cash and custody accounts with AEOI partner states annually since 2018. It now has AEOI agreements with more than 100 countries, and the network is growing steadily. Information will only be shared with additional states once they achieve full compliance with the international AEOI criteria.
Reviewing and refining AEOI
The fact that AEOI has become established as the global norm makes ensuring a level playing field relative to rival financial centres all the more important for Switzerland. Against a backdrop of tax transparency, therefore, special attention must be paid to fundamental principles of law such as confidentiality, data protection, legal certainty and speciality. The task of ensuring a level playing field is entrusted to the OECD’s Global Forum, which regularly reviews all participating states and draws up recommendations.
In its first review of the implementation of AEOI, the Global Forum rated Switzerland as generally good with room for improvement in some areas and made specific recommendations, which Switzerland has acted on by amending its legal basis for AEOI (the AEOI Act and Ordinance). The SBA successfully argued in favour of minimising the impact of these amendments on the banks. The amended Act and Ordinance entered into force on 1 January 2021.
Legal basis of AEOI
The AEOI standard consists of four elements, which are set out in the OECD’s Standard for the Automatic Exchange of Financial Account Information in Tax Matters. The OECD’s complete AEOI package can be found here.
To ensure that two countries can apply the AEOI standard reciprocally, they must have an intergovernmental agreement. The OECD provides a model agreement to this end: the Competent Authority Agreement or CAA. States can use the CAA if their government has the power to commit the country to the new standard.
Switzerland does not use the CAA but instead concludes bilateral agreements in the form of international treaties. The current list of Switzerland’s AEOI partner states can be found here.
The Common Reporting Standard (or CRS) contains the actual AEOI standard. It must be transposed into national law.
The commentaries illustrate and interpret the Competent Authority Agreement (CAA) and the Common Reporting Standard (CRS).
The Implementation Handbook sets out the technical requirements for the exchange of data between tax authorities and how data security is to be ensured.
Transposition into Swiss law
In order for the AEOI standard to become applicable to banks and tax authorities in Switzerland, it must be transposed into national law and other regulations. These are:
- the amended AEOI Act (AEOIA), which entered into force on 1 January 2021;
- the amended AEOI Ordinance (AEOIO), which also entered into force on 1 January 2021;
- the updated FTA AEOI guidelines, which contain almost 180 pages of detailed information on how financial institutions must implement AEOI;
- the FTA technical guidelines, which specify the IT requirements.
AEOI Qualification Committee
The AEOI Qualification Committee was formed to institutionalise dialogue between the tax authorities and the financial sector with regard to the joint implementation of the AEOI standard. It assesses questions on the interpretation of the AEOI rules in Switzerland and standardises how those rules are put into practice.
The AEOI Qualification Committee is led by the Federal Tax Administration (FTA) and the State Secretariat for International Finance (SIF). Various organisations from affected sectors, including the SBA, are also involved.