COMBATING tax evasion is on the top of agenda of tax authorities across the world if the massive spurt in the number of exchange of information (EOI) on taxpayer-related information including cross-border transactions and taxpayers' foreign assets over the last nine years is considered as barometer.

According to a policy brief published by Tokyo-based Asian Development Bank (ADB) Institute, the number of bilateral and multilateral EOIs shot up to 3000 in 2014 from 82 in 2004.Most, but not all, agreements meet the Global Forum standards, suggesting the generally high quality of agreements in place.

The Brief captioned ‘Exchanging Information to Combat Tax Evasion' has concluded that effective mitigation of tax evasion through EOI brings immediate benefits for tax authorities and positive ripple effects for the local and regional economies. Sending and receiving information on taxpayers helps countries fight illicit outflows, foster sustainable institutions, and enhance cooperation.

It has cited the case of Australia that able to recover A$ 459 million as a result of over 400 EOI requests—an average of over A$1 million per request in 2013. Similarly, in 2014, the Philippines recovered more than $1 million through just two cases as a result of EOI with other countries.

The Brief says: “Continued improvements and implementation of EOI mechanisms will grow government coffers, build trust, fight corruption, and help engender a level playing field for companies and individuals.”

It points out that most of the current effort to combat evasion focuses on EOI on request. This is the practice whereby a tax authority requests information about one of its citizens or businesses from a foreign tax authority. The taxpayer may have deposited funds in a foreign bank account and the foreign tax authority has the power to access that information and send it to the requesting tax authority.

Two other types of EOI are emerging - spontaneous EOI and automatic EOI. The former type is the practice whereby a tax authority has information about an individual or business that it feels might be useful to a foreign tax authority. This exchange is becoming more common, notably among OECD countries.

The latter type requires countries to automatically send bulk information mostly from financial institutions to each other. Other types of tax cooperation include conducting industry-wide EOI, undertaking simultaneous tax examinations or joint audits of persons or companies operating in two or more countries, and carrying out a tax examination abroad.

As put by the Brief, “Automatic EOI is the next step in the battle against tax evasion. 2014 was a seminal year culminating in the November endorsement by the G20 of a Common Reporting Standard (CRS) for automatic EOI. Non-resident financial account information is provided to the tax authority in the country of residence of the account holder.”

It says use of automatic EOI will allow participating countries to exchange pre-agreed “bulk” information each year, without having to send a specific request.

The new standard has three facets: (i) information reported, (ii) financial institutions required to report, and (iii) account holders subject to reporting.

The information reported for personal data consists of name, address, tax residence, and tax identification number (TIN).