Scope of Automatic Exchange of Information (AEOI) Framework

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India is pressing for expanding the scope of the Common Reporting Standard (CRS) at the G20 to include non-financial assets, like real estate properties, under the Automatic Exchange of Information (AEOI) among OECD countries.

The rationale behind India’s Demand

As per the OECD’s Tax Transparency report, amid the current geopolitical and debt crisis, there is a need to check tax evasion and illicit financial flows, especially by Asian nations which are estimated to have lost €25 billion in revenue in 2016.
- The current global landscape makes the fight against tax evasion and other illicit financial flows (IFFs) even more pressing: the aftermath of the COVID-19 pandemic and the geopolitical crisis resulted in slower economic growth
- Tax evasion and other forms of IFFs are a global problem that hinder domestic revenue mobilisation.
Therefore, there is a need to broaden the scope of AEOI so that the information could be used not only to check tax evasion but also for other non-tax law enforcement purposes.
There is also a need to expand the CRS from financial to new other non-financial accounts and assets because the risks are not only in financial assets, there is a risk of tax evasion in non-financial and real assets, properties, etc.

About Automatic exchange of information (AEOI) framework

It provides for the automatic exchange of a predefined set of information between tax authorities.
The AEOI Standard requires the annual exchange of information on financial accounts held by non-resident individuals and entities in a pre-defined format.
- The information exchanged includes details about the financial account (e.g. the financial institution maintaining it, the account number and the account balance) and details about the account holder (e.g. their name, address, date of birth, and taxpayer identification number).
Importance: Under the AEOI framework, signatory countries follow a CRS and obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.
- the AEOI Standard provides a powerful tool to help deter and identify offshore tax evasion through holding financial assets abroad.
- It provides for sharing of financial account details among signatory countries with the aim to check tax evasion.
Developments: In August 2022, the OECD also approved the Crypto-Asset Reporting Framework (CARF) which provides for the reporting of tax information on transactions in crypto assets in a standardised manner, with a view to automatically exchanging such information.
Indian Scenario: India currently has AEOI with 108 jurisdictions for receiving financial information and with 79 jurisdictions for sending information automatically.

The Common Reporting Standard (CRS)

It was developed in response to the G20 request and approved by the OECD Council in 2014.
It calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.

Non-financial assets

Non-financial assets held by households include in theory, both produced and non-produced nonfinancial assets and therefore include Dwellings and other buildings and structures and land improvements; Machinery and equipment including livestock; and even intellectual property products, such as software and literary originals, and non-produced assets such as land and taxi-licenses.
In practice dwellings form by far the most significant component.
Except for dwellings, only those assets owned by household unincorporated enterprises, and used in production, are included as non-financial assets.
- For example a car used by a household purely for household transport is not a nonfinancial asset whereas a car used by a selfemployed taxi driver is.

Do you Know?

The ‘Tax Transparency in Asia 2023’ report was launched at the meeting of the Asia Initiative of the Global Forum on Transparency and Exchange of Information for Tax Purposes.
- Currently, 167 jurisdictions are members of the Global Forum which include all G20 countries.
The report is a key output of the Bali Declaration.
- It aims to show the Asian countries’ progress in the last decade and to guide the future work of the Asia Initiative.

Source:IE

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