The AEoI will enter into force in less than a year

in Financial Services, Tax, 09.03.2016

Now that it is drawing closer, various countries, first and foremost Switzerland, have started to conclude agreements on the automatic exchange of information (AEoI) with partner states. It has been known for some time already that EU member states among themselves and EU member states with Liechtenstein have introduced the AEoI as at 1 January 2016, with a first exchange of data in the year 2017 regarding 2016. It is expected that Switzerland will be exchanging data with 38 countries in 2018 in respect of 2017 data. It is only a matter of time until the group of AEoI partner states will develop into a dense network.

AEoI ratified by Parliament

In December 2015, the Swiss Parliament ratified the implementation law on the automatic exchange of information, the Swiss Federal Act on the International Automatic Exchange of Information in Tax Matters (AEoIA). Unless a referendum is called against it, nothing will prevent the AEoI from taking effect as of 1 January 2017.

As the AEoI is a globally standardized regulation, the individual countries have rather little leeway in its implementation. Switzerland has certainly done everything within its power to use this leeway to its maximum.

Switzerland already has 38 AEoI partner states

Until now, nearly 100 countries have committed to introduce the AEoI, including all important financial centers, with the exception of the USA. However, just the fact of a country’s commitment to the AEoI does not yet allow to draw conclusion as to which countries it will in the end indeed exchange information. The AEoI’s introduction requires a bilateral or multilateral activation thereof by the treaty states concerned. In Switzerland, such agreements with individual partner states must be presented to Parliament separately for ratification. Currently, Switzerland intends to introduce the AEoI as of 2017 with 38 countries with a first information exchange in 2018.

In spring 2015, Switzerland had signed AEoI agreements with the EU member states (including Gibraltar) as well as Australia. While the introduction of the AEoI with the EU member states is based on an existing agreement (the EU Savings Tax Agreement became an AEoI agreement), the AEoI agreement with Australia is based on the OECD’s Convention on Administrative Assistance as well as a Multilateral Competent Authority Agreement (MCAA).

The two drafts have already been submitted to Parliament for approval and will be deliberated by the Council of States in March 2016.

In the first two months of this year, Switzerland has signed eight additional joint declarations on the introduction of the AEoI based on the Convention on Administrative Assistance as well as a Multilateral Competent Authority Agreement and has started hearings on these. The declarations were concluded with Guernsey, Isle of Man, Iceland, Japan, Jersey, Canada, Norway and South Korea.

According to the State Secretariat for International Financial Matters (SIF), this is the first group of countries with which Switzerland has agreed to implement the AEoI. The introduction of the AEoI with further countries can therefore be expected for 1 January 2018 at the earliest, with initial exchange of data in September 2019.

Criteria for Swiss AEoI partner states

In its negotiation mandate of October 2014 the Swiss Federal Council defined that the partner states should fulfill certain criteria in areas such as market access or the regularization of the past. Moreover, data protection should be granted and the specialty principle (i.e. that the data received may only be used the agreed-upon purpose) should be maintained.

However, some questions arise in this regard from today’s perspective:

  • At what point is market access secured in the long term?
  • Is the condition of a regularization facility also given if such voluntary disclosure will generate a surcharge of let’s say 60% on assets or if the repatriation of assets is mandatory?
  • To what extent can the introduction of the AEoI (which is an OECD standard) be denied to another OECD member (for instance, Mexico)?

Only time will tell to what extent the Swiss Federal Council will be able to implement the defined criteria in its negotiations with these partner states. In the end, it may well also be a question of the pressure exerted by the OECD to build a broad network of AEoI partner states within an adequate deadline.

Looking across borders

The AEoI has already been implemented within the EU as well as between EU member states and Liechtenstein on 1 January 2016 (albeit without Austria which will only introduce the AEoI a year later). It remains to be seen which other countries will start exchanging data of 2016 in 2017. It is expected that quite a few will follow and implement the AEoI retroactively back to 1 January 2016 with a first exchange in 2017. In 2017, the AEoI will be introduced between numerous more individual countries. For instance, the EU has already agreed with Andorra, Monaco and San Marino for an implementation in 2017.

Analysis of impacts and further steps

With the conclusion of inter-governmental agreements, the AEoI becomes concrete. It is expected that Switzerland will implement the AEoI with 38 countries as at 2017. Other countries should follow in 2018.

Swiss financial institutions do not have very much time left to implement the AEoI. In a first stage, financial institutions should analyze the impact the AEoI will have on them and then define the necessary steps. Furthermore, the institutions should develop a communication strategy for its clients as these start asking questions now. Thereby, the regularization of the past, particularly in view of the already existing tax transparency (i.e. in the form of group requests), has a special significance.

 

 

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2 Comments

  1. Valera

    I can’t find information anywhere on why did USA not joined this exchange. Isn’t it weird to you?

    • Philipp Zuend

      The USA will not implement the Automatic Exchange of Information, as the USA submits (limited) data under FATCA to foreign countries, if the respective Intergovernmental Agreement (IGA) provides for this. Whereas the Swiss IGA does not provide for such US data submissions, do most of the other IGA oblige the US banks to report too.

      Best,
      Philipp

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