AEOI: Knowing how to seize the opportunity to update the documentation of pre-existing accounts

The legal framework for the introduction of the Automatic Exchange of Information (AEOI), which concerns all natural and legal persons not resident in Switzerland, came into force on the 1st of January 2017. The data collected through the implementation of the AEOI standard includes identification information, account information and financial information. In 2018, a first wave of reporting for 38 countries was processed by Swiss financial institutions. Efforts will continue in 2019 and 2020, with the introduction of many new countries. The determination of the AEOI status is initially a prerogative of the contractors and co-contractors of these accounts, but it can sometimes be difficult. Indeed, the AEOI applies to the "pre-existing natural person account" and the "pre-existing entity account" and it is precisely here that difficulties can arise.

What if the relationship is old and the contact with the account holder could not be restored?

What is the risk for the financial institution not to carry out a thorough investigation to determine the AEOI status of the incumbent entities? Some answers.

AEOI : Reminder of the legal framework

• History of the implementation of the AEOI

In 2014, the Organisation for Economic Co-operation and Development Council approved the international AEOI standard in fiscal matters. According to the Federal Tax Administration ( FTA ) , "This transparency aims to prevent tax money from escaping a country's tax system by being hidden abroad. »

Switzerland and the Swiss Bankers Association (SBA) have actively participated in the development of this standard in order to protect its image and that of its banking ecosystem, and to support transparency, while promoting the creation of a standard that is both "practicable and fair". Thus, on the 18th of December 2015, the Federal Assembly regulated the implementation of this exchange of information through the AEOI Act (AEOIA).

• AEOIA : What obligations for Swiss banks?

The new law requires Swiss financial institutions to communicate to the Federal Tax Administration (FTA) the information collected on account holders, which will forward it to the competent national tax authority for each client concerned. In this context, the determination of the account holder's tax residency is of utmost importance. However, collecting this information is not necessarily easy, especially when determining the status of an entity for AEOI purposes. It should be recalled that any person intentionally providing incorrect information to a Swiss financial institution is liable to a fine of CHF 10,000. A financial institution that intentionally fails to fulfil its obligations is liable to a penalty of up to CHF 250,000.

• To Note: AEOI and FATCA, different standards

It is important to keep in mind that the AEOI is a separate standard from the American FATCA legislation which only concerns account holders identified as "US Person" while the AEOI standard concerns account holders from about 100 countries. Compliance with AEOIA therefore requires to determine the status of account holders once again.

• Key Findings: your partner for the implementation of the AEOI

Individuals but also holding companies, trusts, startups, commercial companies, foundations, etc.: all entities are concerned by the AEOI and must therefore complete their identification and determine their status in order to transmit it to the financial institutions concerned. Financial institutions, on the other hand, must verify the identity of the contractors and co-contractors of the accounts associated with these natural persons or entities.

• AEOI status of natural persons

For natural persons, it would be highly recommended to check beforehand that the account holder is still alive, because "Deceased Accounts (Art 17 AEOIA) are part of the "excluded accounts" of the AEOI . However, proof of death must be added to the file. In addition, updating of contact details of natural persons may also be a crucial point in determining the "tax residency". Admittedly, the account may then be considered undocumented and therefore excluded from the scope of the AEOI , but the financial institution must also provide proof that its efforts to obtain self-certification or supporting documents have been unsuccessful (cf. section III, para. B (5), NCD).

• AEOI status of legal entities

For legal entities, the determination of AEOI status is far from negligible: a company's AEOI status directly influences the information to be provided by banks. For example, when an entity qualifies as an active non-financial entity, the bank merely discloses information about the company and the account it holds. But if an entity qualifies as a passive non-financial entity, the bank must also disclose information about the natural persons who control it. As a result, the erroneous determination of an entity's status from an AEOI perspective can have undesirable or even harmful consequences, mainly in terms of taxation.

It is on these different issues: "Undocumented accounts", "excluded accounts", qualification as a "deceased account", verification of the status of legal entities, etc., that at Key Findings we are able to intervene and assist Swiss financial institutions in carrying out their mission successfully. We have been specialized for several years in the search for unclaimed account holders and have a vast network of international partners. Not only can we obtain and update the complete identities and current contact details of account holders (difficulty related to addresses in Po Box, Poste restante, Co/, etc.) , but also provide certified true copies of official documents of legal entities in many countries ( provision of the current location of the registered office, identification number, good standing certificate, etc.) , as well as the current identities and contact details of the legal representatives, and their participation.

Do not hesitate to contact us to determine the services that can be offered to you as part of the implementation of the AEOI.