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What do developing countries hope to achieve from implementing the AEOI?

By Dhanesh Mohanlal CA(SA)

The South African Revenue Service (SARS), through the automatic exchange of information (AEOI), began exchanging tax information with the revenue authorities of over 50 jurisdictions in September 2017. This number has increased to over 100 in September 2018, and this number is set to grow further in the coming years. The benefits associated with adopting the AEOI must be investigated further to understand its growth in adoption over the last few years.

The Organisation for Economic Co-operation and Development’s (OECD) Global Forum on transparency and exchange of information for tax purposes published a report entitled ‘Automatic exchange of information: a roadmap for developing country participation – final report to the G20 Development Working Group’. The following extracts from this report highlight the potential benefits that can be derived by developing countries that choose to implement the AEOI.

Potential benefits of implementation

Detection of tax evasion and offshore wealth

Detection of tax evasion is critical for developing countries. US$8,5 trillion of household assets are held abroad. In 2012, more than 25% of all Latin American and almost 33% of all Middle Eastern and African household wealth was held abroad, compared to the worldwide average of 6%. Estimates of tax revenue and illicit financial flows lost by developing countries generally range in the hundreds of billions of US dollars per year, exceeding the amount of official development assistance.

AEOI can alert tax administrations to tax evasion that was previously unknown and unknowable, potentially raising substantial revenue

AEOI may also assist in de-politicising compliance actions taken against high-profile individuals, as the source of information is external to the domestic tax administration. Unlike exchange of information (EOI) on request which requires substantial efforts on the part of tax administrations to investigate cases and establish foreseeable relevance in each case in order to obtain information, AEOI can achieve efficiencies in information gathering for tax administrations. This is one reason that AEOI can be suitable for developing countries which face capacity constraints.

Deterrence from future non-compliance

AEOI should deter tax evasion and encourage timely compliance by taxpayers where taxpayers are aware that financial institutions will report directly to the tax administration and furthermore for the tax administrator to share that information with other revenue authorities. Many OECD members reported this as a key benefit of AEOI and evidence supports this conclusion. For example,  a 2010 study found that in Denmark, tax evasion occurred only in 0,3% of cases where income was subject to third-party reporting, but in 37% of cases for self-reported income. In the US, 99% compliance was achieved for individuals whose income was reported to the tax administration by financial institutions, whereas misreporting by individuals was found in 56% of cases in which there was little or no third-party reporting.

Support domestic synergies

The AEOI relies on financial institutions to report information to the tax administration. In this sense, it is an extension of a growing trend among tax administrations around the world to use third-party information reporting to assist with tax compliance. The implementation of the AEOI Standard may provide an opportunity for tax administrations to enhance domestic compliance. That is, a jurisdiction may choose to design its implementing legislation to require that financial institutions report information on both domestic and foreign residents (and this may in fact be a simpler process for financial institutions to manage), thereby enhancing the breadth of information automatically available to the tax administration. Capacity-building efforts in tax administration modernisation may be helpful to assist developing countries in designing the requisite systems to enable the use of information received both from domestic and international sources in their tax compliance efforts. As the AEOI Standard builds on anti-money-laundering frameworks, implementing it is an opportunity to strengthen and improve these practices, assisting with the detection of illicit activities. Furthermore, improved performance of the tax administration and anti-money-laundering institutions in turn builds morale among citizens and complements other state-building efforts.

Enhance reputation

It is clear that the G20 sees AEOI as the new global standard with which jurisdictions should comply as part of their responsibilities towards the global financial system. Participating in the Standard demonstrates a continuing commitment to transparency and to tackling tax evasion and the flow of illicit funds. It is concrete evidence of a jurisdiction’s commitment to improving both domestic and international tax compliance, and indicative of the quality and capacity of its institutions. Furthermore, participating in AEOI will require regular exchanges and the building of wide networks of co-operation between tax administrations in a way that EOI on request may not (for example where certain jurisdictions rarely receive or send requests).

Many developing countries are not currently in a position to benefit from AEOI. Examining responses of developing countries (excluding for this purpose G20, OECD and Early Adopters) to a OECD survey indicates that only three developing countries are currently sending information automatically, compared to 50 developed countries. The survey also revealed that 17 developing countries had received information automatically, although in general they considered it to be less useful as compared to developed countries, largely on account of limited capacity to match and use the information received.

The World Bank Group reported on the key challenges faced by developing countries in implementing AEOI: the urgency of other basic domestic reforms; high costs of information technology infrastructure; human resources needs for analysing and using received data efficiently; difficulty of making legislative changes; and limited awareness of exchange of information practices (especially among low-income countries, many of which are not Global Forum members and have not yet committed to or been assisted in meeting the standard on EOI on request).

The Tax Justice Network (TJN) is an independent advocacy group consisting of a coalition of international researchers and activists with a shared concern about tax avoidance, tax competition, tax evasion, and tax havens. It has a focus on offshore financial centres that behave as corporate tax havens.

The TJN conducted a study aimed at finding out the views on AEOI from developing countries. The survey was sent to 37 developing countries on all continents, either to the tax authorities or to relevant contacts that are or were involved in these countries’ tax authorities or ministries of finance. Responses were received from eight jurisdictions: three from Africa, three from Latin America and two from Asia. The developing countries that participated were Argentina, China, Costa Rica, Honduras, Liberia, Morocco, Pakistan and Uganda. It seems many developing countries are aware of and interested in AEOI, acknowledge its potential benefits, and express clear preferences for its design and capacity-building needs.

Views of other developing countries

The following survey questions taken from the study highlight the views of other developing countries on the implementation of the AEOI.

Arguments in favour of implementing AEOI

46% of respondents believed that AEOI would deter taxpayers from future non-compliance; 34% indicated that this would assist in the collection of tax revenues as tax evasion would become more difficult; and 10% suggested that it would help against corruption and 10% felt that not being part of the AEOI would place additional pressure on their respective governments to comply and adopt the AEOI standard.

Arguments against implementing AEOI

A lack of capacity seems to be the key matter that could prevent developing countries from usefully implementing AEOI. These are exemplified by the top three priorities: limited resources to analyse information (28%), followed by limited resources to send information (27%) and the lack of IT technology or electronic records (26%). Difficulties in providing information to other countries was a relevant argument, suggesting that non-reciprocity provisions would help reduce the barriers to developing countries’ participation in AEOI. The fourth argument was that ‘other countries not joining affect a jurisdiction’s competitive advantage’ (12%), indicating the virulent logic of ‘tax wars,’ otherwise known as harmful tax competition. The last option that ‘costs will be greater than benefits’ (7%) was only chosen by a few jurisdictions. This suggests that most countries are convinced that AEOI’s benefits are greater than its costs. The sceptics show that there is a need for more and better studies, including quantitative estimates about the potential revenue and investment benefits.

The findings in the independent report released by TJN therefore validate the key perceived benefits and challenges of AEOI implementation in developing jurisdictions as highlighted by the OECD.

South Africa and the AEOI

One can only assume that National Treasury, together with SARS, perceived similar benefits when making the decision to sign on as early adopters to the AEOI. In addition, the dire need to increase revenue collection through taxes to effectively manage South Africa’s national debt means tax information sharing agreements exposing tax evaders are a top priority. A critical success factor on this initiative is heavily reliant on the quality of information provided by other jurisdictions and subsequently the relevant legal action that will be taken against those people who are identified as non-complaint through information-sharing. For now, we wait for SARS to make available the results of the information-sharing with other jurisdictions. The release of this information will hopefully indicate the success of South Africa adopting the AEOI thereby positively contributing to the fiscus and to a somewhat lesser extent justify the significant amounts of money that financial institutions in South Africa have invested on resourcing, processes enhancements and IT infrastructure required to comply with the requirements of the AEOI.


Andres Knobel and Markus Meinzer, Automatic exchange of information: an opportunity for developing countries to tackle tax evasion and corruption, Tax Justice Network, June 2014, http://citeseerx.ist.psu.edu/viewdoc/download?doi=

Organisation for Economic Co-operation and Development, Global Forum on transparency and exchange of information for tax purposes, Automatic exchange of information: a roadmap for developing country participation – final report to the G20 Development Working Group, https://www.oecd.org/tax/exchange-of-tax-information/global-forum-AEOI-roadmap-for-developing-countries.pdf.

This article was originally published in the April 2019 issue of ASA.