How to Adopt Exchange of Information for Tax Purposes

EOI is the process by which countries share information through official channels and in accordance with standards, mechanisms, and peer review process set under the Global Forum.

There are two EOI standards: exchange of information on request and automatic exchange of information.

Under the exchange of information on request standard, tax authorities can make specific requests to other tax authorities for information, such as accounting records, bank statements and information on the ownership of assets, that will help them in their tax investigations.

Meanwhile, the automatic exchange of information is the automatic exchange of a predefined set of data between tax authorities. This standard requires the annual exchange of information on financial accounts held by nonresident individuals and entities in a predefined format. Information exchanged includes details about the financial account (e.g., financial institution maintaining it, account number, account balance) and details about the account holder (e.g., name, address, date of birth and taxpayer identification number).

By empowering tax authorities to tackle tax evasion and avoidance, EOI contributes to a more equitable tax system, leading to increased revenue and improved financing for public services and infrastructure.

EOI is an important tool to help developing countries access development financing and mobilize domestic resources. It offers several benefits to achieve national priorities and Sustainable Development Goals.

Uncover tax evasion and noncompliance
Tax authorities can identify tax evasion and noncompliance by sharing relevant tax information across borders, ensuring the collection of unpaid taxes. International cooperation and information exchange enable authorities to detect discrepancies and uncover hidden assets or income streams that would otherwise go undetected. This collaborative approach improves the effectiveness of audits and investigations, leading to a more accurate assessment of taxpayers' liabilities.

Ensure fairness within tax systems
EOI ensures fairness in tax systems by leveling the playing field for all taxpayers, ensuring that everyone contributes equitably to government revenues, regardless of their financial means or global connections. By mandating the exchange of financial information, EOI reduces opportunities for tax evasion through misrepresented cross-border activities or undeclared offshore assets. This approach enhances equity by applying the same scrutiny and compliance standards to both domestic and international taxpayers. EOI also upholds the integrity of the tax system by preventing wealthier individuals and multinational entities from unfairly shifting their tax burdens onto less mobile and less affluent taxpayers. Ultimately, this builds greater public trust in the tax system, as citizens observe that tax laws are enforced uniformly and justly, ensuring that everyone pays their fair share.

Deter tax evasion and aggressive tax planning
The knowledge that tax authorities can access information held in foreign jurisdictions acts as a deterrent against tax evasion and aggressive tax planning. It discourages individuals and businesses from hiding incomes or assets offshore. This transparency compels taxpayers to faithfully comply with their tax obligations, as evasion strategies are more likely to be detected. The threat of hefty fines and legal consequences further dissuades aggressive tax planning and evasion. By improving the visibility of cross-border activities, EOI fosters a culture of honesty and fairness in the tax system, boosting taxpayer morale and encouraging voluntary compliance.

The ADB Exchange of Information Handbook is designed to assist policymakers, decision-takers, and practitioners who are interested in better understanding EOI concepts and engaging with the Global Forum.

The handbook explains how to comply with and benefit from internationally agreed tax transparency standards, including the Exchange of Information on Request and Automatic Exchange of Information. It serves as a practical guide for developing jurisdictions beginning their EOI journey and provides information on available technical and other forms of assistance.

Depending on national priorities, and availability of administrative, technological, and human resources, countries have various options regarding their level of EOI commitment.

For those at the early stage of their EOI efforts, joining the Multilateral Convention on Mutual Administrative Assistance in Tax Matters represents a straightforward and impactful step. The convention is a strong legal foundation for EOI, facilitating cooperation among nearly 150 jurisdictions. As a signatory, developing member countries can start utilizing the Exchange of Information on Request and demonstrate their commitment to tax transparency and international cooperation, without the need to immediately implement complex systems. This initial step can lay the groundwork for further advancements, such as joining the Global Forum, undergoing peer reviews, and eventually implementing the Automatic Exchange of Information.

Among ADB’s 46 developing member countries:

• 17 developing member countries^[1] are not members of the Global Forum
• 21 developing member countries^[2] have not joined the Mutual Administrative Assistance Convention
• 23 developing member countries^[3] have not committed to implementing the Automatic Exchange of Information by a specific date. As a result, these countries will not automatically receive information from tax authorities of other jurisdictions, which could help ensure that their residents are paying taxes on income earned offshore in accordance with their tax laws.

Technical assistance and capacity-building support from international organizations, such as ADB’s regional technical assistance on Enhancing Tax Transparency of ADB Developing Member Countries, are available to help developing member countries overcome initial barriers and effectively utilize EOI at various stages of their respective journey.

^[1] Afghanistan, Bangladesh, Bhutan, Kiribati, Kyrgyz Republic, Lao PDR, Federated States of Micronesia, Myanmar, Nepal, Solomon Islands, Sri Lanka, Taipei,China, Tajikistan, Timor-Leste, Tonga, Turkmenistan, and Tuvalu. (As of July 2024)

^[2] In addition to the 17 non-Global Forum members, four Global Forum members (Cambodia, Fiji, Palau, and Uzbekistan) have not joined the Mutual Administrative Assistance Convention.

^[3] In addition to 17 non-Global Forum members, six Global Forum members (Cambodia, Fiji, Palau, Philippines, Uzbekistan, and Viet Nam) do not host a financial center and were therefore not asked to commit to a specific date.

Asian Development Bank. Asia Pacific Tax Hub.

ADB. 2024. Exchange of Information Handbook.

ADB. Regional: Enhancing Tax Transparency of ADB Developing Member Countries.