AEOI Automatic Exchange of Information

AEOI refers to the Automatic Exchange of Information between international tax authorities in an effort to reduce global tax evasion and increase tax transparency. This includes information relating to Financial Accounts, tax rulings, cross-border arrangements, etc.

The Automatic Exchange of Information specifically relating to Financial Accounts held by individuals, corporations, partnerships, trusts, etc. is governed by the FATCA and CRS regimes.

The exchange of information under FATCA and CRS is typically achieved by requiring local country Financial Institutions (as defined) to provide information on in-scope Account Holders to their local country tax authority (however this process can differ across countries). The local country tax authority in turn exchanges information on such Account Holders with the tax authorities in each relevant foreign jurisdiction, provided that the foreign jurisdiction has signed up to the applicable FATCA/CRS regime.

FATCA

The Foreign Account Tax Compliance Act (“FATCA”) requires Financial Institutions to register and report information on accounts held by Specified US Persons and certain US controlled foreign entities.

Ireland signed an Intergovernmental Agreement (“IGA”) with the US to govern FATCA, which was implemented via domestic Irish legislation. Accordingly, it is critical for Irish tax resident entities and Irish branches of foreign entities to determine whether or not they are classified as Reporting Irish Financial Institutions under Ireland’s IGA with registration and reporting obligations.

Even if an Irish entity has no US ownership and does not earn any US source income, it may still fall within scope based on the nature of its activities. Failure to comply can result in a 30% withholding tax penalty on certain US sources of income, along with local penalties.

CRS

The Common Reporting Standard (“CRS”) is effectively a global version of FATCA introduced by the OECD which requires Financial Institutions to report information on accounts held by tax residents of Reportable Jurisdictions and certain entities controlled by such tax residents. To date, more than 100 jurisdictions have signed up to CRS. Therefore, the scope of reporting under CRS will be much more significant than under FATCA.

Similar to FATCA, domestic Irish legislation was introduced to implement CRS, such that Irish tax resident entities and Irish branches of foreign entities need to determine whether or not they are classified as Reporting Irish Financial Institutions under the Irish CRS provisions with registration and reporting obligations. Unlike FATCA, CRS will be a pure reporting regime with no withholding tax. However, local penalties can be applied for non-compliance.

Key decision steps for Irish entities

Evaluate whether the entity is classified as a Financial Institution for FATCA and/or CRS purposes with registration and reporting obligations

Undertake the necessary due diligence procedures to identify any Reportable Accounts

Prepare the applicable information to report to the Irish Revenue Commissioners by 30 June annually

Consider the applicability of local legislation to subsidiaries or branches located outside of Ireland

Consider the organisational impact of AEOI on an entity’s business, including its interactions with other service providers, the risk of the 30% FATCA withholding tax on US source income and the inclusion of AEOI language in legal agreements.