We summarise the 2022 peer review findings which cover for the first time also the effectiveness of implementation to the AEOI Standard. Our particular focus in this blog post lies on Switzerland's results, which had revised its legislation on the basis of the initial peer reviews.
The Global Forum on Transparency ("Global Forum") monitors and reviews the global implementation of the AEOI Standard ("AEOI") to ensure its effectiveness. With the first rounds of review that were published since 2019, domestic and international legal frameworks for the AEOI have been examined. For the first time, the 2022 report also addresses the question of whether the requirements are being effectively implemented in practice.
The results of the review of domestic and legal AEOI frameworks show that the requirements have generally been implemented with a high level of compliance. 93% of all jurisdictions have legal frameworks fully or substantially in place. Many common issues were found with respect to the legislative provisions to enforce the requirements, including gaps in the powers to address avoidance requirements, impose sanctions for submitting false self-certifications and comprehensive record-keeping obligations. Furthermore, the report makes recommendations, among others for Switzerland, to improve legal frameworks with regard to jurisdiction-specific Non-Reporting Financial Institutions and Excluded Accounts that do not meet the requirement of the AEOI Standard. At this point, we do not expect Switzerland to amend its legal AEOI framework in this respect because Switzerland is convinced that the entities and accounts concerned have a very low risk of being misused for tax evasion and will keep these under review to ensure they continue to post a low risk of being used for tax evasion purposes, but also since the requirements in question are part of a specific proposal, made by the OECD Secretaries following the previous peer review, which has not yet been treated.
The effectiveness review shall ensure that Reporting Financial Institutions correctly implement the due diligence and reporting procedures and that jurisdictions should exchange the information effectively and in a timely manner in practice. It was found that two thirds of the jurisdictions are "on track" with respect to these two requirements. However, common issues have been identified, e.g., limited activities to ensure that the information being reported is complete and accurate. In relation to Switzerland's implementation of AEOI, it is noted that Switzerland has implemented an overarching strategy to ensure compliance with the AEOI, understands its population of Financial Institutions and has the necessary powers and resources allocated to the institution ensuring compliance consisting of 6 full time auditors, as well as additional AEOI- and IT-staff. It seems Switzerland is also effectively enforcing the requirements, including through the inspection of records of Reporting Financial Institutions in audits and the application of dissuasive penalties and sanctions for non-compliance. It also appears that Switzerland is ready to take effective action to address insufficiencies in due diligence documentation. Overall, the review found Switzerland's AEOI implementation to be on track with the requirements to ensure effectiveness in practice.
Based on our experience in dealing with AEOI due diligence and reporting procedures in many different jurisdictions, the overall results of the 2022 peer review are not surprising. They rather confirm our impression that there is still room for improvement in implementing the AEOI effectively in many jurisdictions, whereas the respective processes in Switzerland are already functioning well in all essential aspects as far as we can assess them.
To promote the focus of assessing the effectiveness of the AEOI, the Global Forum is putting in place a further peer review framework, building on the initial reviews to date, to obtain a deeper level of comfort that jurisdictions are ensuring the AEOI operates effectively in practice. We will keep you posted.