eKTP 105

AEOI and CRS
Part 1 of 3 

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The recent development by Inland Revenue Board (IRB) The automatic exchange of information (“AEOI”) and Common Reporting Standard (“CRS”)


Key points

  • Malaysia is a participating country of AEOI System (Automatic Exchange of Information) initiated by the OECD.

  • Malaysian tax authority will automatically receive information on offshore bank account owned by its citizens/residents.

  • All Malaysian financial institutions and banks are required to provide information on bank account owned by foreigners or non- Malaysian residents to the tax department. And the tax authority will transmit such information to the account holder’s  country of residence.


Background

The new global standard on Automatic Exchange of Information (AEOI) reduces the possibility for tax evasion. It provides for the exchange of non-resident financial account information with the tax authorities in the account holders’ country of residence, according to the OECD. 

Participating jurisdictions that implement AEOI send and receive pre-agreed information each year, without having to send a specific request.

AEOI will enable the discovery of formerly undetected tax evasion.  It will enable governments to recover tax revenue lost to non-compliant taxpayers, and will further strengthen international efforts to increase transparency, cooperation, and accountability among financial institutions and tax administrations. 

Additionally, AEOI will generate secondary benefits by increasing voluntary disclosures of concealed assets and by encouraging taxpayers to report all relevant information.
As new information is brought to light by AEOI, the importance of the current standard of Exchange of Information on Request (EOIR) will also increase. 

The two standards of AEOI and EOIR are therefore complementary, working together to enhance the effectiveness of tax administrations’ efforts in addressing international tax evasion. 

A Global Standard on AEOI

In order to most effectively tackle tax evasion while minimising costs to governments and business, a single global AEOI standard for financial account information has been created: the Standard for Automatic Exchange of Financial Account Information in Tax Matters. 

The OECD and G20 developed the Standard with the input of other jurisdictions and in consultation with the financial industry. 

The Standard is very similar to the Model 1 IGA that many jurisdictions will use for implementing the United States Foreign Account Taxpayer Compliance Act (FATCA).

The Standard requires financial institutions to report information on accounts held by non-resident individuals and entities (including trusts and foundations) to their tax administration. The tax administration then securely transmits the information to the account holders’ countries of residence on an annual basis.

The Standard specifies the financial account information to be exchanged, the financial institutions that need to report, and the different types of accounts and taxpayers covered. 

To capture a wide range of information, the Standard requires not only deposit-taking banks to report, but also custodial institutions, certain investment entities, and certain insurance companies. The type of account information to be reported on includes account balances, interest, dividends, and sale and redemption proceeds from financial assets.

In order to ensure that the information is accurate and complete, the Standard also specifies the information gathering procedures to be followed by financial institutions, and these procedures draw on the existing international anti-money laundering standards.

Confidentiality, data safeguards and proper use of the information is critical, and the Standard sets out clear requirements that must be met by all jurisdictions participating in AEOI.

The Standard also includes a model agreement for government authorities to use to operationalise the automatic exchanges and a technical user guide to ensure the information is reported in a standardised format.