Improving the Quality of CRS Data

The collection of error-free data from financial institutions and proper processing of received data

With globalization and digitalization, it has become easier for taxpayers to invest using offshore financial institutions. Consequently, investment profits held offshore are not being properly taxed, threatening citizens’ trust in the fairness and integrity of the entire tax system. To eradicate the increasingly sophisticated offshore tax evasion and enhance global tax compliance, international cooperation among tax jurisdictions is crucial. A pivotal instrument in this endeavour is the proper and effective implementation of the Automatic Exchange of Information (AEOI).

In this context, a global consensus on the need for a standardized approach emerged, leading to the signing of the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (MCAA) in 2014. In 2022, information on more than 120 million financial accounts was exchanged among 108 jurisdictions. However, the purpose of the automatic exchange of financial account information extends beyond mere data exchange. Only when each tax administration effectively utilizes the exchanged information can the ultimate goal of stamping out offshore tax evasion be achieved.

The primary requirement for enabling tax administration to effectively use the exchanged information is the identification of account holders within the received data. To achieve accurate identification, the reporting jurisdiction should initially collect correct taxpayer data from financial institutions in their jurisdiction, while the receiving jurisdiction should ensure proper data processing and comparison with the domestic taxpayers’ database.