Estonia
This report analyses the implementation of the AEOI Standard in Estonia with respect to the requirements of the AEOI Terms of Reference. It assesses both the legal frameworks put in place to implement the AEOI Standard and the effectiveness of the implementation of the AEOI Standard in practice.
The methodology used for the peer reviews and that therefore underpins this report is outlined in Chapter 2.
Overall findings
AEOI legal framework
Estonia’s legal framework implementing the AEOI Standard is in place but needs improvement in order to be fully consistent with the requirements of the AEOI Terms of Reference. While Estonia’s international legal framework to exchange the information with all of Estonia’s Interested Appropriate Partners (CR2) is consistent with the requirements, its domestic legislative framework requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (CR1) has a deficiency significant to the proper functioning of elements of the AEOI Standard. More specifically, Estonia’s legal framework includes a category of jurisdiction-specific Excluded Account that is not in accordance with the AEOI Standard.
Overall determination on the legal framework: In Place But Needs Improvement
Effectiveness of AEOI in practice
Estonia’s implementation of the AEOI Standard is partially compliant with the requirements of the AEOI Terms of Reference to ensure the effectiveness of the AEOI Standard in practice. While Estonia is on track with respect to exchanging the information in an effective and timely manner (CR2), there are significant issues with respect to ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures (CR1).
Overall rating in relation to the effectiveness in practice: Partially Compliant
General context
Estonia commenced exchanges under the AEOI Standard in 2017.
In order to provide for Reporting Financial Institutions to collect and report the information to be exchanged, Estonia:
published further guidance, which is not legally binding; and
relies on its legal framework implementing the FATF Recommendations for the purposes of the identification of Controlling Persons under the AEOI Standard.
Under this framework Reporting Financial Institutions were required to commence the due diligence procedures in relation to New Accounts from 1 January 2016. With respect to Pre-existing Accounts, Reporting Financial Institutions were required to complete the due diligence procedures on High Value Individual Accounts by 31 December 2016 and on Lower Value Individual Accounts and Entity Accounts by 31 December 2017.
Following the initial Global Forum peer review, Estonia amended its legislative framework to address issues identified, effective from 20 July 2020.
With respect to the exchange of information under the AEOI Standard, Estonia:
is a Party to the Convention on Mutual Administrative Assistance in Tax Matters and activated the associated CRS Multilateral Competent Authority Agreement in time for exchanges in 2017;
has in place European Directive 2011/16/EU on Administrative Cooperation in the Field of Taxation as amended by Directive 2014/107/EU;
has in place European Union agreements with five European third countries1; and
put in place a bilateral agreement.2
Table 1 sets out the number of Financial Institutions in Estonia that reported information on Financial Accounts in 2021 as defined in the AEOI Standard (essentially because they maintained Financial Accounts for Account Holders, or that were related to Controlling Persons, resident in a Reportable Jurisdiction). It also sets out the number of Financial Accounts that they reported in 2021. In this regard, it should be noted that Estonia requires the reporting of Financial Accounts held by all non-residents and some accounts may be required to be reported more than once (e.g. jointly held accounts or accounts with multiple related Controlling Persons), which is reflected in the figures below. These figures provide key contextual information to the development and implementation of Estonia’s administrative compliance strategy, which is analysed in the subsequent sections of this report.
Table 2 sets out the number of exchange partners to which information was successfully sent by Estonia in the past few years (including where the necessary frameworks were in place but no relevant Reportable Accounts were identified). These figures provide key contextual information in relation to Estonia’s exchanges in practice, which is also analysed in subsequent sections of this report.
In order to provide for the effective implementation of the AEOI Standard in Estonia:
the Tax and Customs Board (the tax authority) has the responsibility to ensure the effective implementation of the due diligence and reporting obligations by Reporting Financial Institutions and for exchanging the information with Estonia’s exchange partners;
technical solutions necessary to receive and validate the information reported by Reporting Financial Institutions were put in place through the tax authority’s online services portal e-MTA; and
the Common Transmission System (CTS), and in the European Union (EU) the Common Communication Network (CCN) are used for the exchange of the information, along with the associated file preparation and encryption requirements.
It should be noted that the review of Estonia’s legal frameworks implementing the AEOI Standard concluded with the determination that Estonia’s domestic legal framework is In Place But Needs Improvement and its international legal framework is In Place. This has been taken into account when reviewing the effectiveness of Estonia’s implementation of the AEOI Standard in practice.
Findings and conclusions on the legal frameworks
The detailed findings and conclusions on the AEOI legal frameworks for Estonia are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Domestic legal framework: Jurisdictions should have a domestic legislative framework in place that requires all Reporting Financial Institutions to conduct the due diligence and reporting procedures in the CRS, and that provides for the effective implementation of the CRS as set out therein.
Determination: In Place But Needs Improvement
Estonia’s domestic legislative framework is in place and contains most of the key aspects of the CRS and its Commentary requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures, but it needs improvement in relation to the scope of Financial Accounts required to be reported (SR 1.2). More specifically, Estonia’s legislative framework provides for a category of jurisdiction-specific Excluded Account that does not meet all the requirements.
SR 1.1 Jurisdictions should define the scope of Reporting Financial Institutions consistently with the CRS.
Estonia has defined the scope of Reporting Financial Institutions in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.2 Jurisdictions should define the scope of Financial Accounts and Reportable Accounts consistently with the CRS and incorporate the due diligence procedures to identify them.
Estonia has defined the scope of the Financial Accounts that are required to be reported in its domestic legislative framework and incorporated the due diligence procedures that must be applied to identify them in a manner that is largely consistent with the CRS and its Commentary. However, a deficiency has been identified. More specifically, Estonia provides for a jurisdiction-specific Excluded Account that is not in accordance with the requirements. The definition of Financial Accounts, including the provision of Excluded Accounts, is material to the proper functioning of the AEOI Standard.
Estonia should amend its domestic legislative framework to remove Insurance Contracts for Supplementary Funded Pensions from its jurisdiction-specific list of Excluded Accounts as they do not meet the requirements of the AEOI Standard.
SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.
Estonia has incorporated the reporting requirements in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.4 Jurisdictions should have a legislative framework in place that allows for the enforcement of the requirements of the CRS in practice.
Estonia has a legislative framework in place to enforce the requirements in accordance with the CRS and its Commentary.
CR2 International legal framework: Jurisdictions should have exchange relationships in effect with all Interested Appropriate Partners as committed to and that provide for the exchange of information in accordance with the Model CAA.
Estonia’s international legal framework to exchange the information is in place, is consistent with the Model CAA and its Commentary and provides for exchange with all of Estonia’s Interested Appropriate Partners (i.e. all jurisdictions that are interested in receiving information from Estonia and that meet the required standard in relation to confidentiality and data safeguards) (SRs 2.1 – 2.3).
SR 2.1 Jurisdictions should have exchange agreements in effect with all Interested Appropriate Partners that permit the automatic exchange of CRS information.
Estonia has exchange agreements that permit the automatic exchange of CRS information in effect with all its Interested Appropriate Partners.
SR 2.2 Such an exchange agreement should be put in place without undue delay, following the receipt of an expression of interest from an Interested Appropriate Partner.
Estonia put in place its exchange agreements without undue delay.
SR 2.3 Jurisdictions should ensure that the exchange agreements in effect provide for the exchange of information in accordance with the requirements of the Model CAA.
Estonia’s exchange agreements provide for the exchange of information in accordance with the requirements of the Model CAA.
Findings and conclusions in relation to effectiveness in practice
The detailed findings and conclusions in relation to effectiveness in practice of AEOI for Estonia are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Effectiveness in practice: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.
Estonia’s implementation of the AEOI Standard is partially compliant with respect to ensuring that Reporting Financial Institutions are correctly conducting the due diligence and reporting procedures. More specifically, while Estonia is meeting expectations with respect to collaboration with its exchange partners to ensure effectiveness (SR 1.6), there are significant issues with respect to ensuring effectiveness in a domestic context, such as through having an effective administrative compliance framework and related procedures (SR 1.5). Estonia should continue its implementation process to ensure its effectiveness, including by addressing the recommendations made.
SR 1.5 Jurisdictions should ensure that in practice Reporting Financial Institutions identify the Financial Accounts they maintain, identify the Reportable Accounts among those Financial Accounts, as well as their Account Holders, and where relevant Controlling Persons, by correctly conducting the due diligence procedures and collect and report the required information with respect to each Reportable Account. This includes having in place:
an effective administrative compliance framework to ensure the effective implementation of, and compliance with, the CRS. This framework should:
be based on a strategy that facilitates compliance by Reporting Financial Institutions and which is informed by a risk assessment in respect of the effective implementation of the CRS that takes into account relevant information sources (including third party sources);
include procedures to ensure that Financial Institutions correctly apply the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions;
include procedures to periodically verify Reporting Financial Institutions’ compliance, conducted by authorities that have adequate powers with respect to the reviewed Reporting Financial Institutions, with procedures to access the records they maintain; and
effective procedures to ensure that Financial Institutions, persons or intermediaries do not circumvent the due diligence and reporting procedures;
effective enforcement mechanisms to address non-compliance by Reporting Financial Institutions;
strong measures to ensure that valid self-certifications are always obtained for New Accounts;
effective procedures to ensure that each, or each type of, jurisdiction-specific Non-Reporting Financial Institution and Excluded Account continue to present a low risk of being used to evade tax; and
effective procedures to follow up with a Reporting Financial Institution when undocumented accounts are reported in order to establish the reasons why such information is being reported.
In order to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, Estonia implemented many of the requirements in accordance with expectations. However, significant issues were identified. The key findings were as follows:
Estonia developed a compliance strategy, based on a risk assessment that takes into account a range of relevant information sources. The strategy has involved some education and assistance activities as well as the verification of the policies and procedures of Reporting Financial Institutions. Estonia has not yet developed its procedures to test whether Reporting Financial Institutions correctly apply the requirements of the AEOI Standard where these requirements are only included in Estonia’s non-binding guidance, or to ensure that the interaction between Estonia’s AEOI and AML frameworks always results in reporting in accordance with the AEOI Standard.
Estonia has taken steps to understand its population of Financial Institutions, cross-checking domestic lists of regulated entities, the Foreign Financial Institution list for FATCA purposes, and obtaining information on members of financial associations to ensure that Reporting Financial Institutions are classifying themselves correctly under its domestic rules and reporting information as required. The information sources used could be expanded with respect to the identification of entities that may be Financial Institutions for the purposes of the AEOI Standard.
The institution responsible for implementing Estonia’s compliance strategy appears to have the necessary powers to enforce the requirements. With respect to resourcing, Estonia has a cross department working group of four staff available for AEOI tasks, and additionally has assigned one full time staff to monitor and ensure compliance by Reporting Financial Institutions, which has access to IT systems and tools to conduct risk assessments.
Verification activities have commenced in relation to ensuring that Reporting Financial Institutions are carrying out the due diligence required by the AEOI Standard through data analysis and checking that they have documented policies and procedures, but this does not extend to directly verifying that the policies and procedures are carried out in practice. However, there are plans to do so in the future. Checks related to self-certifications have also been limited to review of policy and procedural materials, but there are plans to sample accounts for such documentation in the future.
Estonia has followed up on undocumented accounts and is ready to take effective action to address circumvention of the requirements if circumvention is detected. Estonia is also reviewing its jurisdiction-specific lists of Non-Reporting Financial Institutions and Excluded Accounts to ensure that they remain low risk.
Estonia has one category of Excluded Account that has been recommended to be removed from its jurisdiction-specific list of Excluded Accounts.
Table 3 provides a summary of the specific activities undertaken, or that are planned to be undertaken, in relation to each of the key parts of the framework described above.
With respect to the Financial Account information collected and sent by Estonia, the presence of the key data points of the Tax Identification Numbers and dates of birth appeared to be in line with most other jurisdictions, as did the level of undocumented accounts.
More generally, many of the exchange partners that received a significant number of records from Estonia indicated that they achieved a success rate when matching the information received from Estonia with their taxpayer database that was broadly equivalent to, or better than, what they usually achieve.
Based on these findings it was concluded that Estonia is partially meeting expectations in ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, including by having in place the required administrative compliance framework and related procedures. More specifically, significant issues have been identified, including with respect to the implementation of effective verification mechanisms to assure compliance. Estonia should continue its implementation process to ensure its effectiveness, including by addressing the recommendations made.
Estonia should expand the information sources it uses to identify non-regulated entities that are Financial Institutions for the purposes of the AEOI Standard.
Estonia should further implement its procedures to verify whether Reporting Financial Institutions are complying with the AEOI Standard, including ensuring that the provisions contained only in non-binding guidance are applied effectively in practice and that it monitors the interaction between its AML framework and its CRS framework to ensure that the collection and reporting of information is always in accordance with the AEOI Standard.
Estonia should actively monitor and verify whether self-certifications have been obtained in all cases required by the AEOI Standard, including ensuring that the self-certifications contain all required information.
SR 1.6 Jurisdictions should collaborate on compliance and enforcement. This requires jurisdictions to:
use all appropriate measures available under the jurisdiction’s domestic law to address errors or non-compliance notified to the jurisdiction by an exchange partner; and
have in place effective procedures to notify an exchange partner of errors that may have led to incomplete or incorrect information reporting or non-compliance with the due diligence or reporting procedures by a Reporting Financial Institution in the jurisdiction of the exchange partner.
In order to collaborate on compliance and enforcement, it appears that Estonia implemented all of the requirements in relation to issues notified to them (i.e. under Section 4 of the MCAA or equivalent) in accordance with expectations. While no such notifications have yet been received, Estonia has the necessary systems and procedures to process them as required. It also appears that Estonia will notify its partners effectively if errors or suspected non-compliance is identified when utilising the information received.
Based on these findings it was concluded that Estonia is fully meeting expectations in relation to collaborating with its exchange partners to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures. Estonia is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
CR2 Effectiveness in practice: Jurisdictions should exchange the information effectively in practice, in a timely manner, including by sorting, preparing, validating and transmitting it in accordance with the AEOI Standard.
Estonia’s implementation of the AEOI Standard is on track with respect to exchanging the information effectively in practice, including in relation to sorting, preparing and validating the information (SR 2.4), correctly transmitting the information in a timely manner (SRs 2.5 – 2.8) and providing corrections, amendments or additions to the information (SR 2.9). Estonia is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.4 Jurisdictions should sort, prepare and validate the information in accordance with the CRS XML Schema and the associated requirements in the CRS XML Schema User Guide and the File Error and Correction-related validations in the Status Message User Guide (i.e. the 50000 and 80000 range).
Two exchange partners highlighted a specific issue with respect to preparation and format of the information sent by Estonia relating to failing a technical scan of the file (representing X% of its partners). More generally, four (or 5%) of Estonia’s exchange partners reported rejecting more than 25% of the files received, of which three (or 4%) reported rejecting more than 50% of the files received, due to the technical requirements not being met. This is a relatively high amount when compared to other jurisdictions and it has increased over time. It was noted that Estonia has already successfully addressed all of the issues.
Based on these findings it was concluded that, overall, Estonia is meeting expectations in relation to sorting, preparing and validating the information. It was also noted that there is room for improvement with respect to its systems and procedures to sort, prepare and validate the information. Estonia is therefore encouraged to continue its implementation process accordingly, including in relation to the area highlighted.
Estonia should review its systems and procedures to sort, prepare and validate the information to ensure they meet the requirements of the AEOI Standard.
SR 2.5 Jurisdictions should agree and use, with each exchange partner, transmission methods that meet appropriate minimum standards to ensure the confidentiality and integrity of the data throughout the transmission, including its encryption to a minimum secure standard.
In order to put in place an agreed transmission method that meets appropriate minimum standards in confidentiality, integrity of the data and encryption for use with each of its exchange partners, Estonia linked to the CTS and the CCN which is used for the purposes of exchanges within the EU.
Based on these findings it was concluded that Estonia is fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its partners. Estonia is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.6 Jurisdictions should carry out all exchanges annually within nine months of the end of the calendar year to which the information relates.
Feedback from Estonia’s exchange partners did not raise any concerns with respect to timeliness of the exchanges by Estonia and therefore with respect to Estonia’s implementation of this requirement.
Based on these findings it was concluded that Estonia is fully meeting expectations in relation to exchanging the information in a timely manner. Estonia is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.7 Jurisdictions should send the information in accordance with the agreed transmission methods and encryption standards.
Feedback from Estonia’s exchange partners did not raise any concerns with respect to Estonia’s use of the agreed transmission methods and therefore with Estonia’s implementation of this requirement.
Based on these findings it was concluded that Estonia is fully meeting expectations in relation to sending the information in accordance with the agreed transmission methods and encryption standards. Estonia is therefore encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.8 Jurisdictions should have the systems in place to receive information and, once it has been received, should send a status message to the sending jurisdictions in accordance with the CRS Status Message XML Schema and the related User Guide.
Two exchange partners highlighted delays in the sending of status messages by Estonia, representing 2% of its partners. It was noted that Estonia appears to be successfully addressing the issues to ensure that status messages are sent in accordance with the requirements.
Based on these findings it was concluded that, overall, Estonia is meeting expectations in relation to the receipt of the information. It was noted that there is room for improvement with respect to ensuring that status messages are sent in a timely manner in all cases. Estonia is encouraged to continue to ensure the ongoing effectiveness of its implementation, including in relation to the area highlighted.
Estonia should ensure that it sends status messages to all of its exchange partners in a timely manner.
SR 2.9 Jurisdictions should respond to a notification from an exchange partner as referred to in Section 4 of the Model CAA (which may include Status Messages) in accordance with the timelines set out in the Commentary to Section 4 of the Model CAA. In all other cases, jurisdictions should send corrected, amended or additional information received from a Reporting Financial Institution as soon as possible after it has been received.
Estonia appears ready to respond to notifications and to provide corrected, amended or additional information in a timely manner and no such concerns were raised by Estonia’s exchange partners and therefore with respect to Estonia’s implementation of these requirements.
Based on these findings it was concluded that Estonia appears to be meeting expectations in relation to responding to notifications from exchange partners and the sending of corrected, amended or additional information. Estonia is encouraged to continue to ensure the ongoing effectiveness of its implementation.
Assessed jurisdiction’s comments on the assessment of effectiveness in practice
There is no doubt that a smooth cooperation between tax authorities creates a fairer economic environment for people, businesses and jurisdictions. The Global Forum on Transparency and Exchange of Information for Tax Purposes is significantly contributing to that goal by monitoring and assisting in the implementation of now various global standards.
We have a great appreciation for the kind guidance received from the assessment team during this assessment period.
Regarding the supervision of financial institutions, Estonia focused initially on consulting the relevant institutions with the objective of giving the financial market sufficient time to get their IT-systems and processes running. At the same time Estonia’s financial supervision agencies carried out extraordinary anti-money laundering inspections at all the banks and branches of foreign banks operating in Estonia. The risks from serving non-residents were substantially reduced and as of the end of 2021 the share of non-residents in Estonian credit institutions remains only 2,97%. This data has indicated that the overall level of compliance with CRS is satisfactory and Estonian Tax and Customs Board could prioritize the resources on supporting voluntary compliance and on the use of information before initiating more comprehensive audits of Reporting Financial Institutions as a next step.
The recommendations given are accepted as fair and valuable indicators for designing the improvements in the near future. Estonia has been actively exchanging automated data since 2015 in EU and will continue to enhance its efforts to improve the effectiveness of the AEOI Standard in practice.