Australia
This report analyses the implementation of the AEOI Standard in Australia 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
Australia’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 Australia’s international legal framework to exchange the information with all of Australia’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 an element of the AEOI Standard. More specifically, Australia’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
Australia’s implementation of the AEOI Standard is on track with respect to the requirements of the AEOI Terms of Reference to ensure the effectiveness of the AEOI Standard in practice. This includes ensuring Reporting Financial Institutions correctly conduct the due diligence and reporting procedures (CR1) and exchanging the information in an effective and timely manner (CR2). Australia is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
Overall rating in relation to the effectiveness in practice: On Track
General context
Australia commenced exchanges under the AEOI Standard in 2018.
In order to provide for Reporting Financial Institutions to collect and report the information to be exchanged, Australia:
enacted the Tax Laws Amendment (Implementation of the Common Reporting Standard) Act 2015 (TLA(ICRS) 2015); and
Under this framework Reporting Financial Institutions were required to commence the due diligence procedures in relation to New Accounts from 1 July 2017. With respect to Preexisting Accounts, Reporting Financial Institutions were required to complete the due diligence procedures on High Value Individual Accounts by 31 July 2018 and on Lower Value Individual Accounts and Entity Accounts by 31 July 2019 and 31 July 2018 respectively.
Following the initial Global Forum peer review, Australia made various amendments to its legislative framework to address issues identified, the last of which was effective from 18 December 2020.
With respect to the exchange of information under the AEOI Standard, Australia:
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 2018; and
put in place a bilateral agreement.1
Table 1 sets out the number of Financial Institutions in Australia 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 Australia 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 Australia’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 Australia in the past few years (including where the necessary frameworks were in place, containing an obligation on Reporting Financial Institutions to report information, but no relevant Reportable Accounts were identified). These figures provide key contextual information in relation to Australia’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 Australia:
the Australian Taxation Office (the ATO, 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 Australia’s exchange partners;
technical solutions necessary to receive and validate the information reported by Reporting Financial Institutions were put in place through the ATO’s CRS reporting portal which allows submissions in CRS XML Schema format and Excel spreadsheets via a Small Reporter Tool. This information is then subject to a two-step validation process to ensure it is consistent with the XML Schema requirements; and
the Common Transmission System (CTS) is used for the exchange of the information, along with the associated file preparation and encryption requirements.
It should be noted that the review of Australia’s legal frameworks implementing the AEOI Standard concluded with the determination that Australia’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 Australia’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 Australia 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
Australia’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, Australia’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.
Australia 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.
Australia 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, Australia provides for a jurisdiction-specific Excluded Account that is not in accordance with the requirements, as it does not provide for effective penalties for withdrawals that do not meet the criteria of the account. The definition of Financial Accounts, including the provision of Excluded Accounts, is material to the proper functioning of the AEOI Standard.
Australia should amend its domestic legislative framework to remove the Scholarship Plans from its jurisdiction-specific list of Excluded Accounts, as they do not meet the requirements in the AEOI Standard, such as by not having penalties for withdrawals from the accounts for non-educational purposes.
SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.
Australia 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.
Australia 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.
Australia’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 Australia’s Interested Appropriate Partners (i.e. all jurisdictions that are interested in receiving information from Australia 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.
Australia 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.
Australia 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.
Australia’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 Australia 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.
Australia’s implementation of the AEOI Standard is on track with respect to ensuring that Reporting Financial Institutions are correctly conducting the due diligence and reporting procedures and are therefore reporting complete and accurate information. This includes ensuring effectiveness in a domestic context, such as through having an effective administrative compliance framework and related procedures (SR 1.5), and collaborating with exchange partners to ensure effectiveness (SR 1.6). Australia is encouraged to continue its implementation process to ensure its ongoing effectiveness.
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, Australia implemented most of the requirements in accordance with expectations. However, an issue was identified. The key findings were as follows:
Australia implemented an overarching strategy to ensure compliance with the AEOI Standard developed after conducting a risk assessment that took into account a range of relevant information sources, such as the information reported by Financial Institutions, the compliance findings of the AML regulator and investment income declarations by investment companies. Australia’s compliance strategy facilitates compliance and incorporates a credible approach to enforcement. Australia intends to keep its compliance strategy and risk assessment under review to ensure its effectiveness on an ongoing basis.
Australia has worked effectively to understand its population of Financial Institutions, including relevant non-regulated entities, utilising various relevant information sources, such as information from its AML supervisory authorities, the Foreign Financial Institution list for FATCA purposes and information obtained under its domestic Annual Investment Income reporting requirements. It is taking action to ensure that Reporting Financial Institutions are classifying themselves correctly under its domestic rules and reporting information as required. Australia intends to keep its understanding of its Financial Institution population up to date on a routine basis.
The institution responsible for implementing Australia’s compliance strategy appears to have the necessary powers and resources to discharge its functions. With respect to resourcing, Australia has assigned the equivalent of five full time staff to monitor and ensure compliance by Reporting Financial Institutions, which have access to IT systems and tools to conduct risk assessments, such as the ATO’s Action Differentiation Framework and its CRS risk filter. Overall, they appear to have effectively implemented an operational plan to verify compliance with the requirements. While in some cases, the ATO has analysed the results of any independent review of records commissioned by Financial Institutions (as encouraged by the ATO), the ATO has not yet commenced the direct verification of records.
It appears that Australia effectively enforces the requirements, including by carrying out compliance checks on Reporting Financial Institutions and through the application of dissuasive penalties and sanctions for non-compliance. It also appears that Australia is ready to take effective action to address circumvention of the requirements if such circumvention is detected, and that action is being taken to ensure self-certifications are obtained as required and to follow up on undocumented accounts.
Australia will also keep its jurisdiction-specific lists of Non-Reporting Financial Institutions and Excluded Accounts under review to ensure they continue to pose a low risk of being used for tax evasion purposes.
Australia has one category of Excluded Accounts, which 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.
In terms of the Financial Account information collected and sent by Australia, while the presence of the key data point of dates of birth and the level of undocumented accounts appeared to be in line with most other jurisdictions, it was found to include a lower proportion of Tax Identification Numbers with respect to the individuals associated with the accounts when compared to most other jurisdictions. This is a key data point for exchange partners to effectively utilise the information.
More generally, the majority of the exchange partners that received a significant number of records from Australia indicated that they achieved a success rate when matching the information received from Australia with their taxpayer database that was broadly equivalent to, or better than, what they usually achieve.
Based on these findings it was concluded that, overall, Australia is 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. It was also noted that there is room for improvement with respect to commencing reviews of records as part of an in-depth audit. Australia is therefore encouraged to continue its implementation process accordingly, including by addressing the recommendation made.
Australia should implement its plans to include a review of records as part of its activities to verify and ensure that Reporting Financial Institutions are correctly conducting their due diligence and reporting obligations.
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 Australia 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, Australia has the necessary systems and procedures to process them as required. Australia also notifies its partners effectively of errors or suspected non-compliance it identifies when utilising the information received.
Based on these findings it was concluded that Australia 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. Australia 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.
Australia’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). Australia 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).
Feedback from Australia’s exchange partners did not raise any specific concerns with respect to their ability to process the information received from Australia and therefore with respect to Australia’s implementation of these requirements. More generally, none of Australia’s exchange partners reported rejecting more than 25% of the files received, due to the technical requirements not being met. This is a relatively low amount when compared to other jurisdictions.
Based on these findings it was concluded that Australia is fully meeting expectations in relation to sorting, preparing and validating the information. Australia is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
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, Australia linked to the CTS.
Based on these findings it was concluded that Australia is fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its partners. Australia 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.
One exchange partner highlighted delays in the sending of information by Australia. It was noted that Australia successfully addressed the issue and sent the information as soon as possible thereafter.
Based on these findings it was concluded that Australia is fully meeting expectations in relation exchanging information in a timely manner. Australia 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 Australia’s exchange partners did not raise any concerns with respect to Australia’s use of the agreed transmission methods and therefore with Australia’s implementation of this requirement.
Based on these findings it was concluded that Australia is fully meeting expectations in relation to sending the information in accordance with the agreed transmission methods and encryption standards. Australia is 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.
Feedback from Australia’s exchange partners did not raise any concerns with respect to Australia’s receipt of the information and therefore with Australia’s implementation of these requirements.
Based on these findings it was concluded that Australia is fully meeting expectations in relation to the receipt of the information. Australia is encouraged to continue to ensure the ongoing effectiveness of its implementation.
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.
Australia 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 Australia’s exchange partners and therefore with respect to Australia’s implementation of these requirements.
Based on these findings it was concluded that Australia appears to be meeting expectations in relation to responding to notifications from exchange partners and the sending of corrected, amended or additional information. Australia is encouraged to continue to ensure the ongoing effectiveness of its implementation.
Note
← 1. With Singapore. Australia has also activated a relationship under the CRS MCAA with Singapore.