Automatic Exchange of Information (“AEOI”) Regimes
Timeline Overview
Disclosures
- Financial Accounts details (e.g., accountholder, income & value)
- Financial accounts positions
- Payments made not involving a financial account (FATCA only)
- Certain sales activities performed online (seller, income, products & services)
- Specific financial account position(s)
- Online trading of certain goods & services
- Trading with or using digital / crypto assets as payment (user, income/expense, value)
- Wallets (hot & cold)
- Certain digital / crypto assets used as investment and payment
- Ownership of real estate abroad
- Income & amounts related to the real estate
- All real estate owned 25% or more
AEOI Regimes
Insights
- When offshore bank accounts came under scrutiny and eventually subjected to tax transparency from 2014/15 onwards, an increase in tax compliance occurred in the immediate aftermath and governments helped the process along with e.g., time limited voluntary disclosure programs.
- As offshore bank accounts got less popular, crypto or digital assets started to see increased interest. OECD CRS and US FATCA was aimed at financial accounts and payments (the latter for FATCA) and did not sufficiently capture crypto or digital assets, and that lead to OECD CARF and US DATR.
- The CARF and DATR rules are new and therefore lacks insights on actual impact. The OECD has chosen to view CARF as an extension of CRS and the rules must have necessary overlaps and interactions to avoid overcomplicating the implementation. The US has chosen to integrate DATR directly into existing tax rules by adding relevant sub-sections into the US tax Code, and it has no connection to or interaction with FATCA. DATR, although it has a minor overreach abroad regarding brokers, is not based on e.g., Intergovernmental Agreements like FATCA is.
- CARF and DATR focus on the qualifying crypto/digital asset element of any transaction.
- Simultaneously with the crackdown on financial accounts and crypto/digital assets, the OECD took a swing at online businesses posing a tax evasion risk. The rapidly developing capabilities of the internet resulted in new business models surfacing. The nature of some of these business models was questioned by tax authorities who experienced that tax compliance based on self-assessment and disclosures was insufficient. This impacted certain products and services sold via a third-party platform.
- With the DPO the targeted online activities got exposed from 2023 onwards.
- The OECD developed the DPO on the experience from CRS i.e., the use of financial accounts and use of fiat currencies. Online trades settled using crypto assets are therefore not fully captured by the DPO e.g., currently the reporting requirements do not allow for reporting crypto assets and wallets used. However, the activity is captured even if the financial data currently cannot be reported. The financial data is, however, captured by CARF.
- The DPO captures trading with fixed assets online via a platform. It does not capture old school auctioning where items cannot be auctioned online, and assets are held in storage in a tax-free zone.
- The FAEIIP is specifically aimed at real estate e.g., buildings and land.
- Immovable property is also captured by the DPO but only to the extent it is rented out via a platform operator.
- FAEIIP is currently broad in its wording and addresses scenarios of a controlling stake in the property (25% or more) including those scenarios captured by the DPO. The lack of coordination may lead to inefficiencies and controversies.
- The rules are primarily aimed at identifying relevant property and its owners, but reporting does include financial information too. It is currently unclear if the use of crypto assets is captured by the FAEIIP or if that part is only captured by the CARF as it is for DPO.
- The OECD still has time to make improvements to the FAEIIP as the rules are aimed at going live from 2029/30.
- US Persons living abroad may be captured through local tax residence rules triggering the AEOI and indirectly through that have disclosure obligations locally that could be exchanged with the IRS under other treaty and tax information exchange cooperation rules.
- As a taxpayer you should be aware of the need to understand at least the high-level intentions and reach of the various AEOI regimes, their inter-relations, and active MCAA network as it will help you to make more informed decisions.
