2. Peer reviews of the AEOI Standard’s implementation
In addition to monitoring the timeliness of each jurisdiction’s implementation of the AEOI Standard, the Global Forum conducts peer reviews to ensure the implementation is both complete and effective. This chapter provides an overview of the methodology used for the peer reviews and a summary of the findings so far.
In order to ensure that the implementation of the AEOI Standard is both complete and effective, the Global Forum conducts peer reviews in relation to all of the key areas of the AEOI Standard. These are conducted in accordance with the agreed Terms of Reference for the AEOI reviews, which are contained in Annex C of this report.
Properly implementing the AEOI Standard requires various legal, technical and operational aspects to be put in place and for them to operate effectively in practice. The Global Forum therefore conducts peer review processes specifically designed for each of the requirements in the AEOI Terms of Reference. The various processes are as follows:
Confidentiality and data safeguards: The information exchanged, which is sensitive taxpayer information, must be properly safeguarded and used only for the purpose for which it was exchanged or subsequently authorised, in accordance with the international treaty framework. The Global Forum therefore conducts reviews of the legal and operational arrangements jurisdictions have in place before they commence exchanging information. Assistance is given where needed. The Global Forum again reviews the legal and operational arrangements in place once exchanges are underway, to ensure the requirements are met on an ongoing basis. The Global Forum also has a mechanism to react to breaches of confidentiality or the safeguarding of data.
Domestic and international legal frameworks: Financial Institutions must be required to conduct the due diligence and reporting requirements and there must be a legal basis to exchange the information. The Global Forum therefore conducts peer reviews of the domestic legislative frameworks and the international legal frameworks to ensure they are complete. The detailed results, updated to reflect the most recent changes, are set out in this report.
Effectiveness in practice: Not only must the legal frameworks be in place, but they must be implemented and operate effectively in practice. The Global Forum is therefore currently reviewing each jurisdiction’s implementation of the AEOI Standard in practice, including the frameworks and activities taken to ensure compliance by Financial Institutions and the exchanges in practice. A summary of the initial findings are included in this report. The detailed results are expected to be published in 2022.
The Global Forum conducts these reviews in stages, mirroring the timings of the implementation process. This ensures that issues are identified early, supporting the effectiveness of the AEOI Standard during the implementation process. Further details on the staging of the various reviews (the “Staged Approach”) are available in Annex A.
This report includes updated information on the results of the peer reviews of the legal frameworks put in place to implement the AEOI Standard that were first published in 2020, including determinations on the extent to which each jurisdiction has put the necessary frameworks in place.
What is new in this report?
Since the publication of the report in 2020, 13 jurisdictions requested a reassessment of their legal frameworks to reflect the actions they have taken to address the recommendations made: Australia, Azerbaijan, Czech Republic, Dominica, Estonia, Faroe Islands, Israel, Liechtenstein, Macau (China), Romania, Slovak Republic, South Africa and Spain. This report therefore includes updated analysis and conclusions to reflect the most up-to-date situation in these jurisdictions.
Analysis and conclusions have also been included in this report for jurisdictions that committed to commence exchanges from 2019, in accordance with the agreed review timetable. These jurisdictions are: Ghana and Kuwait.
What is reviewed
The AEOI Terms of Reference group the requirements with respect to the legal frameworks into two Core Requirements. These are set out below:
Core Requirement 1: Jurisdictions should have a domestic legislative framework in place that requires all Reporting Financial Institutions to conduct the due diligence and reporting procedures in the CRS, and that provides for the effective implementation of the CRS as set out therein.
Core Requirement 2: Jurisdictions should have exchange relationships in effect with all Interested Appropriate Partners as committed to and that provide for the exchange of information in accordance with the Model CAA.
Annex C reproduces the AEOI Terms of Reference, including the detailed Sub-Requirements.
How it is reviewed
For each of review processes in relation to the AEOI legal frameworks, the following steps are conducted:
The Global Forum Secretariat conducts an initial in-depth analysis of the legal texts and drafts proposed recommendations where issues are identified.
The analysis and draft recommendations are sent to all AEOI Peers1 for input, which is included as appropriate.
The analysis and proposed recommendations is sent to the AEOI Peer Review Group (APRG)2 for approval.
The approved analysis and recommendations are submitted to all AEOI Peers for adoption.
Details specific to each peer review process of the legal frameworks are set out below.
Peer reviews in relation to Core Requirement 1
Core Requirement 1 in the AEOI Terms of Reference refer to the detailed due diligence and reporting procedures that Financial Institutions must follow, as specified in the AEOI Standard. These are standardised procedures to ensure that Financial Institutions report the correct information on Financial Accounts and their Account Holders to the tax authority in a uniform manner. It is therefore crucial that each jurisdiction properly reflects these requirements in its domestic legislative framework. The specific elements reviewed are as follows:
The due diligence and reporting rules and the framework to enforce the requirements: This includes a review of how each jurisdiction has: (i) defined the scope of Reporting Financial Institutions, (ii) defined the scope of Financial Accounts that must be reviewed, (iii) implemented the detailed due diligence procedures that must be applied to identify Reportable Accounts, (iv) defined the information that must be reported and (v) provided for a legal framework to enforce the requirements.
The jurisdiction-specific Non-Reporting Financial Institutions and Excluded Accounts: This consists of a specific review to ensure that the Non-Reporting Financial Institutions and Excluded Accounts provided for by each jurisdiction meet the requirements of the AEOI Standard and pose a low-risk of use for tax evasion.
Related legal frameworks: Where jurisdictions rely on non-AEOI legal frameworks to implement the AEOI Standard, these are also reviewed. More specifically, some jurisdictions have cross-referenced pre-existing legislative provisions defining “beneficial owners” to define Controlling Persons with respect to the AEOI Standard and/or provisions to enforce the due diligence and reporting requirements. Where this is the case, then the legislative frameworks referred to are also reviewed to the extent they are relevant for the implementation of the AEOI Standard.
Peer reviews in relation to Core Requirement 2
Core Requirement 2 in the AEOI Terms of Reference contains requirements with respect to both the contents of the international agreements used to exchange the information and the scope of the network of exchange relationships. These requirements are also essential to ensure effective exchange, based on a level playing field. The particular processes conducted are as follows:
Ensuring exchange networks are complete: It is ensured that each jurisdiction’s exchange network includes all of their Interested Appropriate Partners (i.e. those jurisdictions interested in receiving information from a jurisdiction and that meet the expected standards in relation to confidentiality and data safeguards). This includes facilitating jurisdictions in putting agreements in place and the provision of a peer review mechanism that jurisdictions may trigger if they become concerned about delays in a particular potential partner putting in place an exchange agreement with them.
The contents of the exchange agreements: The contents of the exchange agreements put in place are reviewed to ensure their provisions are in accordance with the requirements.
Drawing conclusions
Once the Global Forum completes the reviews of the legal frameworks, it draws conclusions with respect to the extent to which each jurisdiction is considered to have the required legal frameworks “in place”. This culminates in determinations being issued.
The proposed conclusions and determinations are made by an AEOI Assessment Panel of 14 experts drawn from AEOI Peer jurisdictions with a mandate of analysing the results of the peer reviews and preparing a short report on each jurisdiction. The AEOI Assessment Panel consults each Assessed Jurisdiction in relation to its report before submitting the reports to the APRG for discussion and approval. The reports are then sent to all AEOI Peers for adoption prior to publication. The jurisdiction-specific reports are presented in Chapter 3.
The determinations made with respect to each Core Requirement and the overall determination are either: “In Place”, “In Place But Needs Improvement” or “Not In Place”. Further details on how to interpret each of these determinations are set out in Table 2.1 below.
Overall compliance remains high and improving
Even prior to the publication of the AEOI peer review report in 2020, many jurisdictions were quick to address the issues raised to ensure a complete implementation of the required legal frameworks. Sixty-four jurisdictions brought amendments into effect to address the recommendations made and requested a reassessment by the Global Forum. Overall, over 450 recommendations were addressed, including over 50 jurisdiction-specific exclusions being removed as they were found to insufficiently meet the requirements.
Since the publication of the AEOI peer review report in 2020, a further 13 jurisdictions requested a reassessment of their legal framework to reflect the actions they have taken to address the recommendations made. Their actions resulted in a further 66 recommendations being addressed, including the removal of 17 jurisdiction-specific exclusions. In terms of the conclusions, the amendments resulted in four jurisdictions (Czech Republic, Liechtenstein, Slovak Republic and South Africa) achieving an upgrade both to their determination in relation to CR1 and their overall determination, from “In Place But Needs Improvement” to “In Place” and one jurisdiction (Azerbaijan) achieving an upgrade both to its determination in relation to CR1 and its overall determination, from “Not In Place” to “In Place But Needs Improvement”. Furthermore, one jurisdiction (Dominica) achieved an upgrade in its determination, in relation to CR1 and their overall determination, from “Not In Place” to “In Place”. These amendments are reflected in this report.
With respect to the two jurisdictions that committed to commence exchanges from 2019 (i.e. the two new reviews in this report), Ghana and Kuwait, they received a determination of “In Place” for CR2. With respect to CR1, Ghana received a determination of “In Place But Needs Improvement” and Kuwait received a determination of “Not In Place”. Their determinations for CR1 were also mirrored in their overall determinations.
In terms of the overall picture, there continues to be a very high level of compliance of the legal frameworks put in place to implement the AEOI Standard with the AEOI Terms of Reference. Of the 102 jurisdictions committed to commencing exchanges by 2019, virtually all of them (100) have an international legal framework that is fully in accordance with the AEOI Terms of Reference. The Global Forum has therefore issued them with a determination of “In Place” for CR2. Furthermore, the majority of jurisdictions (59) have domestic legislative frameworks that are also fully in accordance with the AEOI Terms of Reference. The Global Forum has therefore issued these jurisdictions with a determination of “In Place” for CR1. Fifty-nine jurisdictions therefore received an overall determination of “In Place”.
By far the next largest group of jurisdictions (32) are those for which the Global Forum issued a determination of “In Place” for CR2 and “In Place But Needs Improvement” for CR1. Their peer review reports include one or more recommendations to amend their domestic legislative framework in order for it to be fully consistent with the AEOI Terms of Reference. Consequently, 32 jurisdictions received an overall determination of “In Place But Needs Improvement”. In total, 89% of the jurisdictions now have domestic and international legal frameworks that are fully or substantially in place, up from 88% in 2020. This demonstrates a generally high level of compliance with the Terms of Reference.
Following the actions taken, 89% of the jurisdictions have now been determined to have domestic and international legal frameworks that are fully or substantially in accordance with the AEOI Terms of Reference
Of the remaining jurisdictions (12), 10 have implemented a domestic legislative framework which contains many of the requirements, but that include significant deficiencies. The remaining two jurisdictions have not yet implemented a domestic legal framework. Twelve jurisdictions have therefore received an overall determination of “Not In Place”. Figure 2.1 summarise the distribution of the peer review results.
The main need for improvement remains the jurisdiction-specific exclusions and the enforcement frameworks
As set out last year, while there is a generally high level of compliance with the requirements, there are some commonalities in relation to the issues where recommendations are made. Some of these are highlighted below.
The most common issues relate to the following:
There are several instances where the Global Forum has found that the jurisdiction-specific Non-Reporting Financial Institutions and Excluded Accounts are not in accordance with to the requirements of the AEOI Standard. This is the largest category of remaining recommendations.
Perhaps of even greater significance are the issues found with respect to the legislative provisions to enforce the requirements. This includes powers to address avoidance of the due diligence and reporting requirements, the ability to impose sanctions on Account Holders and Controlling Persons for submitting false self-certifications and having record-keeping obligations that cover the full scope of the records required to be kept under the AEOI Standard. Such recommendations represent the next largest category of issues. Their significance is shown by the fact that all of the jurisdictions with legal frameworks that have been determined to be “Not In Place” have multiple recommendations with respect to their enforcement frameworks.
Several more specific recommendations have also been made in cases where jurisdictions have summarised the detailed definitions in the AEOI Standard with the omission of relevant details that are needed to ensure their full and proper operation.
The Global Forum continues to work with the jurisdictions concerned to assist them in addressing the issues where recommendations have been made.
Jurisdiction-specific conclusions
Table 2.2 contains a summary of the determinations made with respect to legal frameworks introduced by each jurisdiction to implement the AEOI Standard. Further details on the analysis and reasons for the determinations for each jurisdiction can be found in Chapter 3.
Having complete legal frameworks is not sufficient to ensure that the AEOI Standard is effective and delivers the potential benefits it has to offer. It must also be ensured that the requirements are being effectively implemented in practice. The Global Forum has therefore commenced its peer reviews to assess the effectiveness in practice of each jurisdiction’s implementation of the AEOI Standard.
What is reviewed
Similarly to the legal frameworks, the AEOI Terms of Reference group the requirements with respect to effectiveness in practice into the same two Core Requirements. These are set out below:
Core Requirement 1: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.
Core Requirement 2: Jurisdictions should exchange the information effectively in practice, in a timely manner, including by sorting, preparing, validating and transmitting it in accordance with the AEOI Standard.
Annex C reproduces the AEOI Terms of Reference, including the detailed Sub-Requirements.
How it is reviewed
For the reviews of effectiveness in practice, the following procedures are followed:
Each jurisdiction provides a detailed description of the operational frameworks they have in place to ensure the effective implementation of the AEOI Standard. This information is provided in accordance with agreed detailed questionnaires covering all aspects of the AEOI Terms of Reference. Information on the activities they have undertaken is also provided, as well as the outcomes achieved.
All AEOI Peers are invited to provide input in relation to their experiences in relation to the exchanges in practice and any issues experienced when trying to utilise the information received from each of their exchange partners. Input is also provided on the level of co-operation experienced with each jurisdiction when seeking to follow- up and with them to address such issues.
The AEOI Assessment Panel, comprised 13 of experts from AEOI Peer jurisdictions, analyses the information provided and other relevant information such as that found in the public domain, and follows up with each jurisdiction and its exchange partners with respect to any omissions or uncertainties. Once a complete as possible view of the situation in each jurisdiction is established, the AEOI Assessment Panel prepares a short report on each jurisdiction.
The reports are provided to each jurisdiction for comment before they are submitted to the APRG for discussion and approval. They are then sent to all AEOI Peers for adoption before being published.
During 2021, the process set out above has taken place, although the reports are not for publication at this stage. This is to provide early transparency to jurisdictions in relation to the issues identified and to provide time for actions to be taken to address them, given the AEOI Standard is relatively new. The process will be repeated in 2022 to reflect the most up to date information before the reports are published.
Details specific to each part of the peer review process in relation to effectiveness in practice are set out below.
Peer reviews in relation to Core Requirement 1
The AEOI Terms of Reference refer to jurisdictions ensuring that, in practice, Reporting Financial Institutions are effectively implementing the detailed due diligence and reporting procedures specified in the AEOI Standard. Various specific requirements in relation to the required framework are set out, such as the elements of the administrative compliance framework that must be put in place. Some of the key elements are referred to below.
Having an effective administrative framework to ensure compliance: This includes: (i) developing a compliance strategy based on a risk assessment that takes into account a range of relevant information sources, (ii) procedures to ensure that Reporting Financial Institutions are reporting information as required, and (iii) verification procedures to ensure that the information being reported is complete and accurate, including accessing the records maintained by Reporting Financial Institutions. Various other specific aspects are mentioned, including the need for effective enforcement mechanisms.
International collaboration to ensure effectiveness: There are also provisions in the AEOI Standard to provide for collaboration between exchange partners to address errors or non-compliance by Reporting Financial Institutions.
In practice, reviewing the implementation of these requirements has involved the following two steps:
The first step is obtaining a clear view of all of the aspects of each jurisdiction’s plans, policies and procedures put in place to ensure the effective implementation of the AEOI Standard by Reporting Financial Institutions, as well as the actions taken and the outcomes achieved. In this regard there are several key criteria that the AEOI Assessment Panel seeks to establish are being delivered. For example, a jurisdiction’s approach should be based on a jurisdiction-specific strategy that takes into account the domestic context, such as the nature of the financial sector and relevant issues and risks. This strategy should also be refined over time to ensure its ongoing effectiveness. As part of this strategy, the first broad set of actions that are expected to be taken by jurisdictions on an ongoing basis is a comparison between the list of Financial Institutions that reported information, with other information sources. This is in order to identify any Reporting Financial Institutions that are incorrectly not reporting. The other information sources used should include lists of regulated entities as well as information sources relevant to identifying non-regulated Reporting Financial Institutions. Then, if any entities are identified that should be reporting and that are not, follow-up actions are expected to be taken to ensure that reporting takes place as well as ongoing compliance. The second broad set of expected actions relate to ensuring that the information that is reported is complete and accurate. This involves developing and implementing a compliance strategy that includes an analysis of the information reported, compliance checks and in-depth reviews, including the inspection of the records held by Reporting Financial Institutions. Again, if non-compliance is identified then action should be taken to ensure compliance on an ongoing basis. In this regard dissuasive penalties should be applied where appropriate. Details of the relevant policies and procedures as well as the maturity, scale and frequency of their application are examined, as well as details of the types of issues identified and the follow-up actions taken.
The second step is complementing the analysis with information on the experience of each jurisdiction’s exchange partners. This includes whether the jurisdiction’s exchange partners have identified any errors or suspected non-compliance by Reporting Financial Institutions when processing and analysing the information received. Of relevance is also if such issues have been raised with the jurisdiction and, if so, whether follow-up actions are being taken and whether the issues have yet been resolved.
Where deficiencies or areas for improvement are identified, then recommendations are made.
Peer reviews in relation to Core Requirement 2
The AEOI Terms of Reference also contain requirements in relation to the processing of the information reported by Reporting Financial Institutions and its subsequent transmission to exchange partners. Some of the key elements are below.
Preparing and validating the information: Once reported by Reporting Financial Institutions, the information must be sorted, prepared and validated in accordance with the technical requirements set out in the AEOI Standard (e.g. the CRS XML Schema).
Using secure channels to exchange the information: It is of vital importance that the information is kept safe while it is being transmitted. This is ensured through the use of the Common Transmission System which utilises industry leading security standards and which is used by all jurisdictions.
Timeliness in the exchanges and follow-up: The timeliness of the exchanges are also reviewed, including the timeliness of any response to follow-up from a jurisdictions’ partners, including the provision of additional or amended information as necessary.
In practice, reviewing the implementation of these requirements has involved obtaining detailed information from each jurisdiction’s exchange partners on a range of relevant areas. These include qualitative descriptions of any issues experienced with the preparation and format of the information received from the jurisdiction in question, as well as information on the numbers of rejections of files due to the requirements not being met. Similarly, details in relation to the timeliness of the exchanges as well as the timeliness of the provision of new or amend information in response to follow-up enquiries are examined. Where such issues are reported by a jurisdiction’s exchange partners then there is engagement with both sides to the exchange relationship to identify the underlying causes and what needs to be done.
Again, where deficiencies or areas for improvement are identified, then recommendations are made.
Initial findings of the review processes
The timeline for the peer reviews in relation to the effectiveness in practice of the implementation of the AEOI Standard was designed to allow issues to be identified early and to provide time for them to be addressed, before the final conclusions are drawn and the results published. This was to recognise that the AEOI Standard is still relatively new and that the expectations in relation to ensuring its effectiveness in practice would evolve as the relevant experience grows. A summary of the initial findings of the review process is provided below.
Core Requirement 1: Ensuring Reporting Financial Institutions correctly implement the due diligence and reporting procedures
To date it is clear that a very significant number of jurisdictions have already diligently reflected on how it can be best ensured that the AEOI Standard operates effectively in their domestic context, taking into account jurisdiction-specific risks identified, and developing and implementing suitable compliance strategies. These include appropriate policies and procedures to both ensure that Reporting Financial Institutions report information as required and that the information they report is complete and accurate.
As a first step, this generally includes communication and outreach activities to ensure that Reporting Financial Institutions are aware of their obligations and have channels to ask any questions they have to resolve remaining uncertainties. This is to help ensure compliance upfront. This is generally complemented by the provision of guidance or answers to frequently asked questions. The overwhelming majority of jurisdictions have already carried out such activities.
Most jurisdictions have also taken action to verify that all Reporting Financial Institutions are reporting information as required. This generally incudes cross-checking the Financial Institutions that report information against regulatory lists, the FFI list for US FATCA purposes and other relevant sources of information, such as tax filings. Where there are discrepancies, then jurisdictions are taking action to ensure that the relevant obligations are being complied with and that information is being reported as required.
With respect to making sure that the information being reported is complete and accurate, greater variation has been observed in the level of the maturity of implementation so far. A very large number of jurisdictions have implemented desk-based checks to identify potential non-compliance, and many have also commenced in depth reviews, including on-site visits and the inspection of the records held by Reporting Financial Institutions. Furthermore, jurisdictions are often carrying out dedicated checks to follow-up on issues raised by their exchange partners, to ensure that self-certifications are being obtained as required and to follow-up on the reporting of undocumented accounts. There are also many examples where enforcement frameworks have already been activated to address non-compliance and to ensure the requirements are being complied with on an ongoing basis. Where such activities have not yet taken place, jurisdictions often have detailed plans to commence them and the activities are expected to commence in the coming months. In other cases, implementation is far less mature and jurisdictions are still reflecting on the broad frameworks to be put in place. These jurisdictions have significant work to do in order to deliver what is required. It is noted that the implementation of some of these activities has often been impacted by the COVID-19 pandemic. This is an area where significant further progress in implementation is expected in the coming months and the Global Forum is providing assistance where needed.
Core Requirement 2: Exchanging the information effectively in practice and in a timely manner
When it comes to the exchange of the information and ensuring that the technical and timing requirements are being met, the vast majority of jurisdictions are performing well. Furthermore, where issues have arisen, the vast majority of jurisdictions are reacting effectively, engaging with their exchange partners and identifying and addressing the underlying issues.
There are some instances of jurisdictions experiencing systematic issues with how they prepare the information to send. They are generally reviewing their systems and processes accordingly, to ensure that the issues are fixed in time for future exchanges.
Next steps
Under the agreed methodology, each step of the review process will be repeated during 2022 to develop an up to date picture of the implementation of the AEOI Standard across all jurisdictions. This will allow jurisdictions to provide any updates in relation to the activities they have undertaken, including in response to the issues identified so far, as well as for their exchange partners to provide further input in relation to their experience with exchanging information in practice.
The current process will culminate in 2022 with the AEOI Peers adopting the peer reviews for all jurisdictions committed to commence exchanges from 2017 or 2018, including ratings on the effectiveness of each jurisdiction’s implementation of the AEOI Standard in practice. These will be included in next year’s published report.
Notes
← 1. All jurisdictions committed to implementing the AEOI Standard and that have passed domestic legislation to that effect.
← 2. A peer review group of the Global Forum consisting of 33 members which replaced the former AEOI Group (www.oecd.org/tax/transparency/documents/aprg-members.pdf).