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Automatic Exchange of Information for Taxation Purposes

Contributed by Larssen
03 August, 2017

Project Description

Lack of efficient ways to receive financial information from foreign countries has been a serious obstacle to the government's desire to impose tax on residents' income received and stored abroad.

Recently Estonia could exchange information under bilateral double tax treaties (Article 26) or EC Directives (Savings Tax Directive, Directive on administrative cooperation in the field of taxation).

Therefore there was no possibility to obtain information from "non-contractual" countries let alone most low-tax (offshore) jurisdictions.

Additionally, the information exchange basically follows the "by-request" requirement meaning detailed criteria to avoid so-called "fishing expeditions":

  • The request is made about a specific taxpayer.
  • The request is for taxation purposes.
  • The request shall meet the requirements of law and administrative practice of the inquiring party.
  • The inquiring party declares that it has taken all the available measures within its jurisdiction to receive the information, etc.

The requested party may refuse to answer if it requires actions against local laws and administrative practice, if the information contains commercial secrets, etc.

As a result, the "by-request" information exchange requires complicated administrative procedures and is often inefficient.

This approach has been used for decades and greater openness was against the interests of some states that are also financial centres. Changing the approach required consensus and decisions, recently achieved and made by the G20, EU and OECD countries.

Fairly speaking, the changes were stimulated by the world financial crisis and catalysed by the UK initiative as one of the world financial centres and signing agreements with the US under FATCA.

As a result of the changes we switch from an earlier generally accepted by-request data exchange to automatic exchange of financial information.

The changes translated to the following agreements signed by Estonia:

Convention on Mutual Administrative Assistance in Tax Matters, 1988 – new revision of 01.06.2011.

Estonia joined the convention in 2013, Ratified the convention on 26.03.2014.

Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information.

Signed on 29.10.2014. The implementation act is expected before the end of 2015.

Council Directive 2014/107/EU of 09.12.2014, amending Directive 2011/16/EU as regards mandatory automatic exchange of the information in the field of taxation.

Enters into force on 01.01.2016.

Now let us see what implementation of the abovementioned regulations will change in the data exchange.

Convention on Mutual Administrative Assistance in Tax Matters (Convention)

One of the most significant consequences of joining the Convention is the extended list of countries wherefrom information can be received, including many offshore zones, as all the UK and the Netherlands dependent territories (British Virgin Islands, Caiman Islands, Bermuda, Gibraltar, Curacao, St. Maarten, Turks and Caicos Islands, etc.) and many independent states (Belize, Lichtenstein, Seychelles, etc.) have joined the Convention.

Full list of countries that joined the Convention:


Yes, evidently traditional offshore jurisdictions do not have much information useful for taxation purposes, as there is no tax administration. Nevertheless, most of them have been collecting information about the beneficiaries of the companies for some years, and this information can be supplied, as it can be used for taxation purposes in countries where the Controlled Foreign Companies (CFC) rule is applicable. In Estonia this rule is part of the Income Tax Act (Article 12.9).

Additionally, the convention has other data exchange possibilities in addition to the traditional "on-request" one:

  • Automatic exchange

This exchange is subject to preliminary agreement and is a systematic periodic supply of a taxpayer's information, usually about a certain type of income in the source jurisdiction, to the taxpayer's jurisdiction.

  • Spontaneous exchange

Exchange of information between Convention countries without preliminary agreement or request, at the initiative of a Convention country, if:

  1. one of the Parties believes that the other Party bears a tax loss
  2. taxpayer pays reduced tax or is tax-exempt in the first country meaning increased tax or tax obligation in the other country
  3. business operations between a taxpayer of one country and a taxpayer in the other country are arranged through one or more countries so that a certain amount can be saved by reducing taxes in one or both countries
  4. one of the Parties believes that tax reduction is the result of artificial earnings transfer within a group or company
  5. the data sent by one Party to the other Party make it possible to obtain information that could be useful to estimate tax liabilities in the other Party.

In addition to data exchange the Convention includes some tax administration novelties:

  • Simultaneous tax examinations in several countries. Two or more Parties may arrange the examinations in their territories. The aim is to to examine simultaneously, each in its own territory, the tax affairs of a person or persons in which they have a common or related interest,
  • Recovery of tax claims and enforcement measures.

By request of the inquiring Party the inquired Party shall make the necessary steps to recover the tax debts arisen in another country as if they were its own tax claims

Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information

The Agreement* was signed on 29.10.2014 in Berlin by 51 countries* including Estonia on the basis of the Competent Authority Agreement, CAA.

According to the Agreement the participants will automatically exchange data as required by the Convention (see above) using a Common Reporting Standard, CRS.

* http://www.emta.ee/public/Estonia_-_MCAA_-_Certified_Copy.pdf

**List of countries: http://www.oecd.org/tax/transparency/AEOI-commitments.pdf

CAA and CRS were developed by the OECD on the basis of the agreement of the information exchange signed with the US within the general framework of FATCA.

The first information exchange will take place on September 2017.

Some countries that have signed the Agreement confirmed that they are ready to implement CRS as from 2018.

The Agreement is revolutionary in a sense, as it sets a unified standard of global automatic information exchange, not rejecting or substituting any of the previously available opportunities or tools.

The CRS standard obliges financial institutions of the participaing countries to submit annual reports about the accounts of Reportable Persons – individuals and legal entities, including trusts and funds to their tax administrators who in turn will annually deliver the information to tax administrators in other participant countries.

Below we review the subjects of the reports and the contents of the information to be delivered.

Reportable Persons

Reportable Person is an individual or legal entity that is a tax resident of a contractual jurisdiction.

Financial institutions will have to perform Due Diligence in respect of the current accounts of the Reportable Persons and find:

For individuals – name, address, taxpayer identification number, date of birth.

For legal entities – name, legal address, number and address of tax residency.

If the consolidated balance of a legal entity's account does not exceed USD 250,000 at the end of the year, then the account does not need checks or identification and there is no need to provide information about it.

The threshold is not applicable to an individual's accounts.

If a legal entity is not a resident for taxation purposes at the place of registration (e.g. partnership or offshore company), then the place of effective management will be the tax residency.

If more than 50 percent of a legal entity's income is of a passive nature (dividends, interest, etc.), then a Controlling Person should be found, i.e. the individual who is controlling the legal entity.

In most cases a Controlling Person is a Beneficiary Owner. In case of trust it is a settlor, trust manager, protector, beneficiary or any other person who controls the trust.

The information collected about the Controlling Person is the same as collected about the individual Reportable Person.

The Due Diligence procedure for opening new accounts is almost the same.

Reported Information:

In addition to the data specified in the previous section (name, address, taxpayer identification number of reportable person and controlling person) the following information shall be submitted:

account number, account balance and amount, the sum of received interest and dividends, the sum of income from financial assets, the income form insurance products, other income generated on the current and custody accounts.

Directive 2014/107/EU

The Directive amends Directive 2011/16/EU on Administrative Assistance in Tax Matters and substitutes the Savings Directive that remains in force until the end of 2015.

When the directive enters into force, as of 01 January 2016, the EU countries shall have to follow the OECD CRS Standard for the purposes of automatic data exchange as per Directive 2011/16/EU.

So, in addition to the information delivered under Directive 2011/16/EU (income in the form of salary, payments to management boards, from insurance products, pensions, real estate) the data under the CRS Standard will be supplied.


The list of the countries available for tax-related information exchange has been significantly extended and now includes many low-tax jurisdictions.

The type of the date exchange will be "automatic", not "by request".


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