WHAT IS AEOI?
AEOI is part of an international effort to prevent tax evasion. Its aim is to increase tax transparency at a global level and enable governments to reduce income losses through tax evasion. To this end, AEOI regulations target financial institutions and certain types of financial intermediaries with a view to obtaining information on clients who hold one or more accounts outside the jurisdiction of their country of residence.
AEOI was based on the US FATCA (Foreign Account Tax Compliance Act) regulations and is designed to ensure compliance with the new provisions of the OECD's common global standard for exchanging information automatically (called the "Common Reporting Standard" or "CRS"). For European countries, it is also an extension of the European savings tax directive.
WHICH FINANCIAL INSTITUTIONS WILL BE AFFECTED?
Financial institutions will have to comply with the automatic exchange of information if they match with one or more of the following descriptions:
- An institution that accepts deposits in the ordinary course of a banking or similar business;
- An institution for which holding assets on behalf of third parties constitutes a substantial proportion of it commercial activities;
- An investment company (as defined by the AEOI standard), including collective capital investment schemes;
- An insurance company, or a holding company belonging to an insurance company;
- A holding company or a treasury centre.
Banks and other entities within the Edmond de Rothschild group will be affected by this regulation and will be obliged to provide information concerning their clients and/or investors.
HOW WILL THIS WORK?
Signatory countries of the AEOI standard will exchange information automatically on the basis of bilateral or multilateral agreements. All clients holding financial accounts in an institution based in a country that is not their primary country of residence will be affected by this exchange of information (including individuals, legal entities, and both new and preexisting clients).
For wealth management vehicles with beneficial owners, the exchange will affect both the vehicle itself and its beneficial owner(s) depending on their tax residence. Clients with investments in collective capital investment schemes will also be affected by these regulations, depending on their country of residence.
The exchange methods are based on the Intergovernmental Agreement (IGA) Model 1 of FATCA. This means that client information is transferred by the financial institution to the local tax authority, which then transfers the client information to the tax authority of the client's country of residence for tax purposes. Such information will be exchanged on a yearly basis.
Transmitted information will pertain to both the client's identity (name, address, place and date of birth, account number(s) and tax identification number), as well as to the balance(s) of the account(s) as of 31 December and certain financial flows (interest, dividends and gross proceeds from the sale of financial assets).
AEOI provisions do not stipulate progressive implementation of disclosure obligations and all client information will be included in the first report.
KEY IMPLEMENTATION DATES FOR AEOI
- 21 July 2014: Publication by the OECD of the Standard for Automatic Exchange of Financial Account Information in Tax Matters;
- 29 October 2014: 51 jurisdictions sign the OECD's Multilateral Competent Authority Agreement (MCAA). The MCAA contract defines the methods for exchanging information between different countries;
- On 23 July 2015, 56 countries commit to exchanging information for the first time before 30 September 2017; 38 other countries commit to doing so by 30 September 2018.
In total, 98 jurisdictions agreed to the AEOI principle. The exchange will take place, if both the country in which the client has one or more accounts and its country of residence have signed the MCAA.
The list of countries is available on the OECD website:
Depending on the country, the effective date for AEOI is as follows:
- 1 January 2016: the effective date for AEOI in the "Early Adopter" countries, with the first exchange between authorities scheduled for September 2017 (on 2016 data). Affected countries include Belgium, Spain, France, the Cayman Islands, Italy, the British Virgin Islands, Luxembourg, Portugal and the United Kingdom.
- 1 January 2017: the effective date for AEOI in the other signatory countries (the "Late Adopters"), with the first exchange scheduled for September 2018 (on 2017 data). Affected countries include the Bahamas, Hong Kong, Israel, Monaco and Switzerland.
WHAT IMPACT WILL THIS HAVE FOR THE EDMOND DE ROTHSCHILD GROUP AND ITS CLIENTS?
Affected entities within the Edmond de Rothschild group will contact their clients to collect the necessary information. After analysis, each entity will identify those clients who are not resident in its jurisdiction and transfer their information to its local tax authority. Subsequently, the tax authority will transfer information on the relevant clients to the tax authorities in their jurisdiction of residence.
Entities will also have to amend their account opening procedures.
The Edmond de Rothschild group will bring its procedures into line with AEOI while continuing to provide the best possible services to its clients and counterparties.