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After many of the G20 states – a key political driver behind the automatic exchange of information (AEOI) – found themselves with empty treasuries in the wake of the financial and economic crisis, most states shifted their focus to the fight against tax evasion. The OECD was commissioned by the G20 to develop the information exchange. This is exactly what it did with the AIA and the second standard BEPS (Base Erosion and Profit Shifting). However, many countries are lacking the legal basis that enables data to be exchanged by financial institutions. While, in some tax havens like Liechtenstein, data concerning foreign residents will be collected and shared in the next years, it is questionable whether EU states will keep up with this speed in legal and technical terms. Critics believe that countries like Italy and Spain will not be able to create the conditions for this until 2021, at the earliest. Additionally, countries like the United Arab Emirates did only committed to joining.

Automatic Exchange of Information: Ambitious and Unrealistic

The automatic exchange of information is scheduled to begin in 2018 (for legal entities) among the early adopters only, in accordance with an agreement between 55 states and territories. This includes not only Liechtenstein, but also British overseas territories such as the  British Virgin Islands (BVI). Several other governments have agreed only in principle to participate – Singapore for example. Given the immense flood of data the automatic exchange of information standard is unrealistic. So what sounded simple in the beginning is, in fact, quite difficult. Proponents of the model emphasize the deterrent effect which convinces investors to declare their income; opponents warn against a data graveyard. The OECD itself called the plan for the “early adopters” ambitious but realistic. Among the early adopters are countries such as Liechtenstein. More and more EU citizens therefore decide on an account outside Europe in countries with strong bank secrecy or take up residence in a country that does not tax international income for example. These include countries in South America, but also countries with no income tax, such as the United Arab Emirates.

Automatic exchange of information: What Data is Exchanged

Meanwhile, the MCAA (Multilateral Competent Authority Agreement) has created a basis for the introduction of the cross-border automatic exchange of information and determines exactly which data is recorded by banks. This includes the financial accounts of natural persons and legal entities. An extensive exchange before 2018 is clearly not realistic – not even among the early adopters. While countries like Liechtenstein are in the first row, other countries such as Singapore add certain conditions to their participation – reciprocity, for example. The speed of Malta, Latvia or Andorra is also not as expected. Countries such as Panama, Bahrain and Vanuatu completely oppose and refuse the exchange. The United States still demand special rights; although they collect data worldwide through FATCA, as one of the world’s largest offshore locations, they refuse to provide any information.

In closing, the AIA has a deterrent effect. Countries like the United Arab Emirates do not even consider exchanging any information and there are still plenty of options to still enjoy the highest possible confidentiality you expect! The central purpose of GWS is not only the discretion in handling clients’ affairs, which is  fundamental in establishing the trust that lies at the heart of a successful partnership, but also to find the right solution at the right time.

For further information how to avoid the automatic exchange of information and for further information about our visa and residency programs, please feel free to contact us at any time: Call us on (+41) 81 588 0144 .