Automatic Exchange of Information (AEOI): A Global Initiative

By: Justin Meagher and Patti Griffin

Regulatory Solutions group_opt3

As offshore accounts become more common, tax administrators are struggling to accurately track individuals’ wealth. In the past, tax administrators relied on taxpayers to disclose their wealth in these offshore accounts, but with more countries adopting the AEOI system, that may no longer be the case.

Automatic Information Exchange Combats Tax Evasion

The AEOI process requires tax administrators to automatically exchange information with each other. The information is typically collected by the country that holds the offshore account. For example, when US banks issue a 1099 year-end information form, it is transferred to the taxpayer’s resident country. The main goals are to verify the taxpayer is reporting foreign income correctly and the appropriate taxes are being collected. Foreign Account Tax Compliance Act (FATCA) and Common Report Standard (CRS) are examples of newly implemented standards of AEOI. Both are designed to combat tax evasion.

AEOI in Action

Here’s how the Organization for Economic Co-operation and Development (OECD) uses AEOI in CRS:


Likewise, when a Canadian resident invests in a US hedge fund, the fund’s banking institution issues year-end reporting statements (including a 1099 form) to that person. Prior to the existence of FATCA, the Canada Revenue Agency (CRA) might not have known about the foreign income if the Canadian resident did not report it.

Under FATCA, the Internal Revenue Service (IRS) routinely sends financial data on all accounts located in the United States to the CRA. The CRA then reviews the financial data to reconcile tax returns and ensure they were filed accurately. Additionally, there are newly signed and ratified tax information exchange agreements that obligate the CRA to share with the US the same type of information as the US shares with Canada under FATCA. The same obligation now holds for any other type of non-exempt tax reporting attribute.

The adoption rate of AEOI is steadily increasing as countries see the benefits of having a uniform, comprehensive, and systematic approach to transmitting large amounts of financial data. They want to capture tax income that was previously hidden. More than 100 jurisdictions have committed to use the CRS, and 113 jurisdictions have agreements with FATCA.

This new environment can be complicated for fund managers; both CRS and FATCA have their own sets of complex requirements. SS&C provides the right tools and expertise to help financial institutions satisfy these requirements.

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