Automatic exchange of information in tax matters

Automatic exchange of information in tax matters

In a globalised world where capital can be moved across borders with little hindrance, tax authorities face the challenge of combating tax evasion and aggressive tax avoidance. A highly effective tool for promoting tax compliance and combating tax evasion is therefore the automatic exchange of information on financial accounts for tax purposes, also known as AIA known.

What is the AIA?

The Automatic Exchange of Information (AEOI) is an international framework that facilitates the systematic and regular exchange of financial information between tax authorities in different countries in accordance with a standardised procedure (known as the Common Reporting Standard, CRS). The aim is to increase transparency and provide tax authorities with the information they need to collect tax.

How does the AIA work?

The AIA is based on a three-stage process:

1. 1. Level:Financial institutions subject to reporting requirements collect information about their customers’ accounts. This includes the account holders’ personal data as well as information on account balances, interest income, dividends and proceeds from the sale of financial assets.Financial institutions based in Germany that are subject to reporting requirements under the Financial Account Information Exchange Act (FKAustG) include, in this context, custodian institutions (e.g. a bank that manages securities accounts), deposit-taking institutions (e.g. a bank that maintains current accounts), investment firms (e.g. investment funds) and specified insurance companies (e.g. those offering life insurance).

1. 1. Level:
      The information collected is then forwarded to the tax authorities of the relevant country in which the
      financial institution is resident. The Federal Central Tax Office (BZSt) is responsible for financial institutions resident in Germany, as well as for branches of a financial institution resident abroad that are located in Germany. In accordance with Section 27(2) of the Foreign Account Tax Compliance Act (FKAustG), the information subject to reporting requirements for the preceding calendar year (reporting period) must be submitted electronically to the BZSt by 31 July of each year.

1. Level:
   The tax authorities of the participating countries (known as CRS partner states) exchange this information annually and automatically.In Germany, the automatic exchange of information on financial accounts for tax purposes takes place between the BZSt and the relevant competent authority of the CRS partner states participating in the AEOI, within the meaning of Section 1 of the Foreign Account Tax Compliance Act (FKAustG) and in accordance with Section 27(1) of the FKAustG, i.e. annually on 30 September. In return, the BZSt receives data from the CRS partner states on foreign reportable accounts held by persons resident in Germany. The information is then forwarded to the relevant state tax authorities for the purposes of the taxation procedure.

Which countries are participating in the AIA?

As of 27 May 2024, a total of 111 countries (including the British Virgin Islands, Liechtenstein, Switzerland and Cyprus) are already participating in the AIA!

It should be borne in mind that the number of CRS partner countries within the meaning of Section 1 of the FKAustG is rising steadily, as the automatic exchange of information in tax matters has only been taking place since 2017 for reporting periods from 2016 onwards. The Federal Ministry of Finance therefore publishes an annually updated, publicly accessible list of the current CRS partner countries in the so-called FKAustG country exchange list.

Conclusion

The automatic exchange of information on financial accounts for tax purposes is a significant step towards promoting transparency and combating tax evasion. Despite some challenges, the AEOI provides tax authorities with valuable tools for effective tax collection and contributes to international cooperation. As a result, the number of countries participating in the AEOI is increasing every year, thereby closing more and more tax loopholes.

If you are unsure whether you have declared your income correctly for tax purposes, or if you are concerned that proceedings may be brought against you, Criminal proceedings could be initiated, our Specialist lawyers for tax law and Tax consultant We’re happy to be of assistance.