Tax evasion relies heavily on secrecy. Modern international tax enforcement depends on cross-border cooperation and automatic data sharing between sovereign revenue authorities.
Exchange of Information on Request (EOIR)
The traditional method of cooperation where Tax Authority A asks Tax Authority B for specific financial records or bank statements regarding a targeted taxpayer under investigation. The requesting state must show that the information is “foreseeably relevant” to its domestic tax laws.
The Common Reporting Standard (CRS) and Automatic Exchange (AEOI)
Developed by the OECD, the CRS is a global framework for the Automatic Exchange of Financial Account Information (AEOI).
- Commercial financial institutions (banks, investment funds, insurance companies) are required by domestic law to identify accounts held by non-residents.
- They automatically report account balances, interest earned, dividends, and sales proceeds to their local tax authority annually.
- The local tax authority automatically transmits this data to the taxpayer’s home country tax authority, exposing hidden offshore bank accounts without requiring a specific request.
FATCA (Foreign Account Tax Compliance Act)
A unilateral US law with global reach. FATCA forces Foreign Financial Institutions (FFIs) worldwide to report financial accounts held by US taxpayers directly to the US Internal Revenue Service (IRS). Non-compliant foreign banks face a penalty 30% withholding tax on US-source payments.
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