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Data is a core part of transparency. As global standards evolve, tax authorities must be ready to provide more and better-quality data – having the right approach now will support future exchanges of information.
The automatic exchange of information (AEOI) is a globally accepted tax transparency standard that provides jurisdictions with information on financial accounts held abroad by their resident taxpayers. It is aimed at reducing tax evasion and is governed by FATCA and CRS.
Encouraging compliance and increasing transparency is largely driven by collecting the right information and enforcement. Tax authorities that can collect the relevant data, analyse the information, and interpret it for decision making will benefit the most from these standards.
For AEOI to deliver value, it is not only important that information on financial accounts is collected and reported; it is equally crucial that receiving jurisdictions use the data in the most effective way.
AEOI relies on data sharing between participating jurisdictions. In brief, the better the data, the more effective transparency standards are. Countries are expected to maintain a base level of collection, analysis and sharing to ensure transparency standards work.
The Global Forum reviews jurisdictions’ domestic frameworks to make sure they align with AEOI standards. Therefore, the data supplied to them must be reliable and robust. There is also the expectation that data quality will improve over time, meaning that tax authorities are expected to build data frameworks and work with financial institutions to capture this information.
Tax administrations must be able to process data and have the right systems to meet the next frontier in data standards. It is essential to have effective and efficient data collection, analysis, and transfer frameworks, as authorities will need to interpret that data quickly.
Additionally, driving improvements in data for AEOI is likely to unlock additional benefits for tax authorities, supporting revenue collection and voluntary compliance from taxpayers.
Changes and updates are the norm as transparency standards continue to evolve. The demands on information are increasing as the scope broadens and the speed of exchanges accelerates.
Authorities will soon be expected to carry out data matching, sorting, visualising, and analysing as part of AEOI. This will allow administrations to get a clearer picture of taxpayer behaviour, identify and minimise errors, as well as having a more immediate view of tax information. Accessing more data points and higher quality data underpin these capabilities.
The OECD has already started to move towards new goals with the Common Transmission System (CTS). Since going live in February 2021, CTS 2.0 allows for countries to send unstructured files like information requests.
Technological developments give authorities further market intelligence and allow them to make faster and more informed strategic decisions. They must ensure they have the right data foundations so that they can build on this technology in the future.
Tax administrations need to be able to process data quickly and fulfil each new standard and requirement – both internationally and domestically. Strategies for the effective use of data require ongoing learning by teams. This includes the development and tailoring of new tools, skills and methodologies.
This evolution requires a move from traditional data analysis to advanced analytics. Leveraging tools such as machine learning and artificial intelligence can support automation – reducing manual checks and freeing up time to do more high-value work.
Organisations must understand the impact of new technologies on existing processes, as well as the necessary integration between regulation, technology and compliance.
AEOI reporting, such as FATCA and CRS reporting is complex, time-consuming, and constantly evolving. Tax authorities face several challenges, including keeping up with regulations in multiple countries, managing internal resources, lack of adequate software and reporting accurate data in a timely manner.
Administrations should review their processes to ensure they can meet future requirements. This means identifying whether they have the technical and technological resources to keep up with changes, but also ensuring that their compliance systems are robust, flexible, and scalable. Investing in the right technology now will future-proof revenue collection and transparency.
Data is among one of the key AEOI trends for 2022 that tax authorities should keep their eyes on.
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