What is AEOI And How Does it Affect How You Report Tax?

  • By Lee Wei
  • 14 Jul, 2017
Tax regulation has come under increasing levels of scrutiny in recent years, with over 142 jurisdictions making an international commitment to begin Automatic Exchange of Financial Account Information (AEOI) in 2018. Some of these jurisdictions are Singapore, Indonesia, Hong Kong and Switzerland to name a few. For a full list of countries participating in the AEOI, you can refer to this OECD  report .

The main purpose of this exchange is for tax authorities to detect and deter taxpayers that have kept their un-taxed money in accounts held in foreign financial institutions. An internationally agreed standard known as the Common Reporting standard (CRS) is also in place to facilitate this exchange of such financial information information.  Endorsed by the OECD and the Global Forum, participating jurisdictions have agreed to comply and implement the AEOI standard to exchange information by 2018. Singaporean Financial Institutions who are adopting to this new standard will be required to transmit to the Inland Revenue Authority of Singapore (IRAS) information of their account holders who are tax residents of jurisidictions that Singapore has a Competent Authority Agreement (CAA) for CRS with.
Account holders with Singaporean Financial Institutions must now be aware of the information that will be passed over to foreign tax authorities. Information permissible to be transmitted includes: name, address, bank account number, date and place of birth, domicile and more importantly, gross investment income and bank balance at year end. Account holders should also be aware that they may be approached by their financial institutions for information regarding their jurisdiction of residence for tax purposes.

Simply put, the AEOI aims at ensuring that tax offences via a foreign bank account is no longer possible, with only tax compliance assets to be deposited within financial institutions. 
The Swiss Banker's association came up with an informative video back in 2015, explaining the process of the exchange of information. For more information on AEOI in Singapore, feel free to read this  detailed explanation by the IRAS .
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By Lee Wei 16 Oct, 2017
Indonesia
After a series of intensive discussions, the Parliament and Goverment passed Perpu-1 into Law No.9 Year 2017 . This regulation will now allow the Director General of Tax (DGT) to access information from financial institutions as well as to fulfil Indonesia's commmitment to the Automatic Exchange of Information (AEOI).

 In addition, Indonesia has also formed an agreement with Hong Kong to share financial information, giving Indonesian tax offices access to data on tax payers who have accounts in Hong Kong.

Update: 17/10/2017

The Swiss Federal Council has opened consultations on the implementation of new automatic tax information exchange (AEOI) agreements with Hong Kong and Singapore. Signed on October 13,  The Federal Council intends to introduce the AEOI with Singapore and Hong Kong in 2018. The first exchanges of information are expected to take place in 2019.



By Lee Wei 15 Sep, 2017
The first automatic CRS changes are set to take place further this month. The Organisation for Economic Co-operation and Development (OECD) has issued a press release highlighting that further bilateral exchange relationships have been established under the Common Reporting Standard Multilateral Competent Authority Agreement (CRS MCAA) with 49 countries committed to start exchanges this month.
By Lee Wei 31 Aug, 2017
Indonesia

Indonesia and Malaysia signed a new protocol on 20 October 2011 amending the 1991 Indonesia - Malaysia Tax Treaty as last amended by the 2006 Protocol that was ratified in 2010.

This new Protocol updates Article 25 of the tax treating regarding Exchange of Information (EOI). According to this update, both countries must now entertain information requests even if one party might not have a need for the information for its own tax purposes. They are also not allowed to decline an information request solely because the information is held by a bank, financial institution, nominee or person acting in an agency of fiduciary capacity, or because it relates to ownership interest in a person.

While this protocol was ratified in Presidential Regulation No. 77, 2017, it has not yet entered into force and will only do so upon the exchange of the instruments of ratification. This will only take full effect on the first day on the subsequent taxation year of assessment.


Switzerland

The Committee on Economy and Royalties of the National Council or CER-N, a key panel of Swiss parliament which rejected on August 15 a proposal seeking to suspend implementation of the AEOI, will now examine a criteria a country would need to satisfy in order to start gaining access to the data under AEOI. According to the minutes of the last meeting of the committee, the CER-N will continue further examination of the 41 jurisdictions that are to adopt AEOI with Switzerland at a meeting on September 11. This is in accordance to the agreement as decreed by the Federal Council, the highest decision making body of the Swiss Government.   



By Lee Wei 28 Aug, 2017

Indonesia

Indonesian Finance Minister Sri Mulyani Indrawati has made projections in the draft 2018 state budget that the country intends to collect RP 1.61 quadrillion (US$ 120.40 billion) in tax revenue in 2018. This is a 9.3 percent increase from 2017's target of Rp 1.47 quadrillion. 

Citing this projecting as realistic, Sri Mulyani expressed her confidence that the target can be achieved due to positive factors such as tax amnesty, the Automatic Exchange of Information as well as healthy economic conditions.

Meanwhile, Lana Soelistianingsih, an economist at the University of Indonesia (UI), expressed pessimism, indicating that the government has so far managed to collect less than 90 percent of the projected tax revenue in the previous years. In addition, Lana mentioned that the results from the tax revenue collection will be unaffected by the AEOI program as the results for that can only be seen in 2019.

New Controlled Foreign Company Rules in Indonesia

The Indonesian Ministry of Finance (MoF) issued regulation 107/PMK.03/2017 (PMK 107), effective from 27 July 2017. It is immediately applicable starting fiscal year 2017. This regulation revokes PMK-256/PMK.03/2008 and also parts of KMK-164/KMK.03/2002 regarding Foreign Tax Credits (FTC) which deals with FTC calculations for dividends paid by a controlled foreign company (CFC). 

PMK-107 expands the scope of a CFC to include the following foreign companies:

1) Directly owned CFCs - being a foreign entity:

 a) at least 50% owned by an Indonesian taxpayer; or

 b) at least 50% collectively owned by Indonesian taxpayers

2) Indirectly owned CFCs (new) - being a foreign entity with a minimum ownership of 50% another CFC, or collectively by Indonesian taxpayers CFCs, or collectively by a number of CFCs (including under the same or different Indonesian parent company).

For more information on new controlled foreign company rules, refer to PWC's TaxFlash .

Update on Compliance Ratings on Tax Transparency

The Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) has published the second round of compliance ratings on tax transparency for 10 jurisdictions. This is aimed at assessing compliance with international standards for AEOI.  Six jurisdictions,  Australia, Bermuda, Canada, Cayman Islands, Germany and Qatar, were rated "Largely Compliant". Three others, Ireland, Mauritus and Norway - received an overall rating of "Compliant".

All Global Forum members are working together to monitor and review the implementation of the AEOI under the Common Reporting Standard (CRS), which starts September 2017. 



By Lee Wei 17 Aug, 2017
According to China Merchants Bank and Bain & Company, a global business consulting firm, nearly 60 percent of China's high net worth individuals have assets overseas in 2017. This ratio is a stark contrast from what was 20 percent in 2011. Countries such as the British Virgin islands, Cayman Islands and Bermuda have become key areas for the rich to transfer their assets to avoid tax. In both the years 2015 and 2016, it is estimated that more than 1 trillion yuan worth of financial assets were exported overseas. As part of China 's attempt to effectively protect public wealth, China will reportedly exchange financial account information with tax authorities in other countries and regions in September 2018 for the first time. 

The Swiss People's Party (SVP), the biggest right-wing political party in Switzerland, has opposed automatic exchange of banking information with India and 10 other countries. Calling these countries 'corrupt and authoritarian', SVP insisted that 'corrupt countries' should not be allowed to access tax data. Some countries that were named by SVP included: India, Argentina, Brazil, China, Russia, Saudi Arabia, Indonesia, Colombia, Mexico, South Africa and the United Arab Emirates. SVP claims that they will garner majority support in Parliament to bring the AEOI process with these countries to a halt. The session is likely to take place within the next week.
By Lee Wei 17 Jul, 2017
Singapore has signed the Multilateral Competent Authority Agreement (MCCA) on Automatic Exchange of Financial Account Information, with the intended first information exchange date on September 2018. While Singapore has been establishing AEOI (CRS) relationships via the bilateral approach, the signing of the CRS MCCA reaffirms Singapore's commitment to international standards on tax cooperation. In addition, the AEOI relationships remain bilateral under the MCAA - signatories to the MCAA enter into the AEOI on a bilateral basis with another signatory on a mutual consent basis. 

Thus, this agreement facilitates the establishment of proper bilateral AEOI relationships with Singapore's treaty partners. 93 signatories have currently signed the CRS MCAA, with the earliest exchange of information in to take place in September 2017. Other signatories of the CRS MCAA include countries such as China, Indonesia, Switzerland and Saudi Arabia to name a few.

As part of the agreement, Singapore also indicated that it will consider engaging in automatic exchange of financial account information that have the necessary safeguards to ensure the confidentiality of information exchanged. However, exchange of information will not take place with parties that do not have the necessary safeguards in place to ensure confidentiality of information exchanged.  

One such example of a country that is putting in place the necessary safeguards to exchange information with Singapore is Indonesia.  Earlier in July, it was reported by the Jakarta Post that Singapore and Indonesia will soon sign a bilateral competent authority agreement (BCAA) to implement the AEOI. The Government also issued regulations in May 2017 that revoke secrecy regulations to provide the Indonesian Tax Authority (Direktorat Jenderal Pajak) with access to obtain financial account information for the purpose of AEOI.
According to Indonesia's Minister of Finance Sri Mulyani , the two countries are due to 'meet later in September' where the OECD will review if the necessary safeguards are in place to facilitate  AEOI between Singapore and Indonesia.
 It is estimated that 60 percent of S$103.3 billion worth of assets kept abroad by wealthy Indonesians is banked in Singapore. 
By Lee Wei 14 Jul, 2017
Tax regulation has come under increasing levels of scrutiny in recent years, with over 142 jurisdictions making an international commitment to begin Automatic Exchange of Financial Account Information (AEOI) in 2018. Some of these jurisdictions are Singapore, Indonesia, Hong Kong and Switzerland to name a few. For a full list of countries participating in the AEOI, you can refer to this OECD  report .

The main purpose of this exchange is for tax authorities to detect and deter taxpayers that have kept their un-taxed money in accounts held in foreign financial institutions. An internationally agreed standard known as the Common Reporting standard (CRS) is also in place to facilitate this exchange of such financial information information.  Endorsed by the OECD and the Global Forum, participating jurisdictions have agreed to comply and implement the AEOI standard to exchange information by 2018. Singaporean Financial Institutions who are adopting to this new standard will be required to transmit to the Inland Revenue Authority of Singapore (IRAS) information of their account holders who are tax residents of jurisidictions that Singapore has a Competent Authority Agreement (CAA) for CRS with.
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