Automatic exchange of information (AEOI) is the systematic, periodic transfer of tax-relevant data from the country where income arises or assets are held to the country where the taxpayer is resident. Under the main regime, banks and other financial institutions report the accounts of non-resident customers to their own tax authority each year, and that authority passes the data to the tax authority of each customer's home country.
AEOI was developed to counter offshore tax evasion. It differs from exchange on request, in which one tax authority asks another about a named taxpayer and must already have grounds for suspicion, and from spontaneous exchange, in which an authority passes on information it happens to come across. Automatic exchange needs no prior suspicion and covers all reportable accounts in bulk.
Background
For much of the twentieth century, bank secrecy laws in a number of financial centres allowed residents of other countries to hold undeclared assets abroad. Pressure for change grew after the 2008 financial crisis. In 2010 the United States enacted the Foreign Account Tax Compliance Act (FATCA), which requires financial institutions worldwide to report accounts held by US persons or face a withholding tax on US-source payments. Most countries implemented FATCA through intergovernmental agreements, which showed that large-scale automatic reporting was workable.
In 2014 the Organisation for Economic Co-operation and Development (OECD), with the backing of the G20, approved a multilateral equivalent: the Common Reporting Standard (CRS). The first exchanges took place in 2017, and more than a hundred jurisdictions now take part. The Global Forum on Transparency and Exchange of Information for Tax Purposes monitors implementation through peer review.
How the Common Reporting Standard works
The process has four steps. Financial institutions, including banks, custodians, certain investment entities and some insurers, identify which account holders are tax resident in another participating jurisdiction. They do this through due diligence: reviewing existing records and, for new accounts, collecting a self-certification of tax residency and a taxpayer identification number.
Once a year, each institution reports the reportable accounts to its domestic tax authority. The report includes the holder's name, address, jurisdiction of residence, tax number and date of birth, the account number, the year-end balance or value, and amounts of interest, dividends, other income and sale proceeds paid to the account.
The domestic authority then sends the data, in a standard electronic format, to each partner jurisdiction. The receiving authority matches it against tax returns and follows up on discrepancies.
Where an account is held by a passive entity, such as a holding company or trust, the institution must look through it and report the individuals who control it. This uses a concept close to beneficial ownership in anti-money laundering rules; see beneficial ownership for tax purposes.
Legal basis
Exchange between governments rests on an international legal instrument, most often the multilateral Convention on Mutual Administrative Assistance in Tax Matters, or otherwise a double taxation treaty or a tax information exchange agreement. Jurisdictions activate CRS exchanges with each other under a multilateral competent authority agreement. Within the European Union, the standard is applied through the Directive on Administrative Cooperation, which has been amended repeatedly to extend automatic exchange to tax rulings, country-by-country reporting, cross-border arrangements and income earned through digital platforms. Receiving jurisdictions must meet confidentiality and data protection standards before data is sent to them.
Effects
AEOI changed the economics of hiding money abroad. Tax authorities report that information on accounts worth trillions of euros is exchanged each year, and voluntary disclosure programmes launched before the first exchanges brought in substantial additional revenue. Studies have found falls in deposits held in a traditional tax haven by residents of participating countries. Holding an offshore account remains lawful, but it is now far less likely to go unreported.
Limitations and criticism
Several gaps remain. The United States has not adopted the CRS and relies on FATCA, under which it receives more information than it sends. Assets outside the financial system, such as directly held property, art and precious metals, are not covered. Some individuals have obtained residence or citizenship through investment schemes in low-tax countries in order to be reported there instead of at home. Developing countries can find it hard to meet the confidentiality standards needed to receive data, or to use the volume of information received. Financial institutions bear significant compliance costs and must manage overlapping regimes.
Crypto-assets were largely outside the original standard. The OECD approved the Crypto-Asset Reporting Framework in 2022 to bring exchanges and other service providers into scope, alongside amendments to the CRS itself, with many jurisdictions committed to begin exchanges under it in 2027. Customers are often asked for a tax residency certificate or self-certification as a result of these rules. In the United States, reporting is overseen by the Internal Revenue Service (IRS).