In: Economics
Discuss what is meant by automatic exchange of information for International Tax.
Cooperation between tax administrations is crucial in the fight against tax evasion and in the protection of the integrity of tax systems. The exchange of information is a key aspect of this cooperation.
Automatic exchange of information includes the systematic and regular transfer of information from the source country to the country of residence concerning specific categories of income (e.g. dividends, interest, etc.). It may provide timely information on non-compliance where the tax has been avoided either on the investment return or on the underlying capital amount, even where the tax authorities have not had any prior evidence of non-compliance.
To order to counter the issue of offshore tax avoidance and tax avoidance and the squashing of unrecognized money abroad requiring collaboration between tax authorities, the G20 and OECD countries working together have established a Common Reporting Standard (CRS) on Automatic Information Exchange (AEOI). The AEOI CRS was introduced to the G20 Leaders in Brisbane on 16 November 2014. The Hon'ble Prime Minister of India, speaking on the occasion, supported the new global standard, as it would be instrumental in obtaining information on unrecognized money hoarded abroad and its eventual repatriation.
The AEOI CRS allows the financial institutions of the "source" jurisdiction to collect and report information to their tax authorities on "resident" account holders in other countries, which must be forwarded "automatically" on an annual basis. The information to be shared concerns not only individuals, but also shell companies and trusts which have a beneficial ownership or interest in the "resident" countries. In addition, a broad variety of financial products need to be documented by a wide range of financial institutions, including banks, depository institutions, pooled investment funds and insurance firms.