The OECD’s Problematic Global Tax ‘Standard’

For some, the global standard for Automatic Exchange of Information (AEOI) in tax matters is a blessing. For others, it is a curse. Either way, it is much less global, much less standardized and much less automatic than its name suggests.

The Organization for Economic Co-operation and Development (OECD), the intergovernmental organization coordinating AEOI, explains its rationale this way:

“As the world becomes increasingly globalized and cross-border activities become the norm, tax administrations need to work together to ensure that taxpayers pay the right amount of tax to the right jurisdiction. A key aspect for making tax administrations ready for the challenges of the 21st century is equipping them with the necessary legal, administrative and IT tools for verifying compliance of their taxpayers. Against that background, the enhanced co-operation between tax authorities through AEOI is crucial in bringing national tax administration in line with the globalized economy.”

Switzerland, one of the countries adhering to AEOI, gives a direct, even blunt, explanation for its necessity: “Cross-border tax evasion should be prevented with the help of AEOI. … In the wake of the financial and debt crisis, combating tax evasion worldwide has become an important issue which is broadly pursued by the global community. … Approximately 50 states have announced that they will start to exchange in 2017 and the remainder will follow in 2018.”

How does it work?

The AEOI takes a double-layered approach (at least). The highest layer is at the OECD’s level. Here one finds the abstract standards formulated by the organization, including recommendations issued by the Financial Action Task Force (FATF) and the Multilateral Competent Authority Agreement (MCAA), which is a legal treaty between the OECD countries. The second layer is formed by the bilateral agreements on the automatic exchange of information in tax matters, as they are negotiated between countries adhering to the standard. It remains unclear if there is a third layer (for example, between a national entity and its regional units, a relationship outside the OECD’s scope) or an intermediate layer (for example, a multinational automatic exchange of information).

The standard itself applies for both natural persons and legal entities. The beneficial owners of specific accounts should be identified when applying the OECD standard and the FATF recommendations. The information to be transmitted includes account and tax identification numbers, as well as the names, addresses and dates of birth of taxpayers abroad with an account in a country other than the country of origin, all types of income and account balances.

AEOI can be implemented based on the first layer, the MCAA, alone. But by only relying on the MCAA, countries renounce any specificity in exchanging tax information. Therefore, most countries that adhere to the standard opt to implement the AEOI through bilateral treaties with other adhering countries – the second layer. If a country chooses this path, compliance depends on signing into the global standard and then negotiating bilateral treaties with every single adherent country.

What’s the catch?

Since most countries opt for the dual-layered approach, the catch is evident: There is no global standard as such, but a plethora of instances of some global principles. Depending on the negotiation skills of each country, these bilateral treaties will include varying notions of data protection, provisions on double-taxation agreements and even access to financial markets. In other words, negotiating bilateral treaties on AEOI becomes an exercise in trade policy.

From the individual country’s perspective – and from the taxpayer’s point of view, too – this is not necessarily bad. It allows for differentiation and competition, which usually leads to better economic outcomes than global uniformity would. On the other hand, however, and from the OECD’s point of view, this differentiation leads to de-standardization – the very thing the OECD wanted to prevent. Also, the sheer number of possibilities for differentiation means that multinational businesses have to deal with more complexity. This translates into higher fixed costs.

But there is a second catch. Despite all national and bilateral particularities, the highest layer always also applies. This layer automatically incorporates OECD principles and FATF recommendations. When they change – and they can be changed without national legislators even being aware of it – the standards in AEOI change, too. This means all the bilateral treaties need to be adjusted, leading to even more complexity and even higher fixed costs.

What will it become?

In the future, there might even be a third catch. The more differentiation there is between AEOI adhering countries, the more FATF can try to counter it by adjusting the principles and recommendations. Countries could be entangled in a series of bilateral treaty renegotiations. This severely contrasts with the OECD’s promise to institute a simple, stable standard. Instead, it turns the standard into a series of high-cost negotiations.

There is more to fear. As the OECD states its purpose, AEOI is not only a communication channel between adhering countries. The OECD wants to equip countries with the legal instruments necessary to curb tax evasion. This means through the AEOI, the OECD will be imposing legal norms on the tax systems and possibly even corporate laws of some countries.

For example, in 2017, the OECD and its “Global Forum on Transparency and Exchange of Information for Tax Purposes” began assessing the corporate laws of different countries in the light of the AEOI. It found out that a particular type of share, the bearer share, is a tool for tax evasion. The OECD and the Global Forum never fully explained why, but they changed their principles to make countries pass legislation to either abolish the bearer share or convert it into some sort of registered share. Moreover, the OECD is pressing countries adhering to the AEOI to incorporate provisions into their respective criminal laws(!) against people holding unregistered bearer shares.


The global standard for the Automatic Exchange of Information in tax matters is not a simple and stable standard, as the OECD once promised it would be. For countries that adhere to the rules, it leads to a complicated system of wildly different bilateral treaties that all must be altered if the general principles are changed. This means that multinational businesses must bear higher fixed costs and endure long periods of negotiation and renegotiation. Furthermore, the OECD is using the AEOI to apply pressure on countries to change their tax, corporate and even criminal laws.

Henrique Schneider is the Chief Economist of the Swiss Federation of Small and Medium Enterprises.


The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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