How does automatic exchange of information work in Andorra?

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In recent years, Andorra has strengthened its commitment to transparency and international cooperation in tax matters by implementing the Automatic Exchange of Information (AEOI). This mechanism has a significant impact on bank account holders in Andorra who are tax residents of other countries. Below, we detail what it entails, its implications, and the countries with which Andorra has signed agreements.

What is the Automatic Exchange of Information?

The Automatic Exchange of Information (AEOI) is a system through which tax authorities from different countries periodically and systematically share relevant financial data to combat tax evasion. This process is based on the Common Reporting Standard (CRS) established by the Organisation for Economic Co-operation and Development (OECD).

In 2014, Andorra committed to implementing the CRS and, in 2016, signed an AEOI agreement with the European Union that incorporates this standard. At the national level, Law 19/2016 of November 30 was approved to regulate the necessary legal framework and comply with this information exchange commitment. Subsequently, Law 29/2017 of November 30 introduced modifications to the previous regulation to expand and detail the exchange of information procedures.

Who is Subject to Information Reporting?

Individuals or entities holding financial accounts in Andorra who are tax residents of a European Union member state or a country with which AEOI applies. Those subject to information reporting include individuals or legal entities that own financial accounts and individuals who control passive non-financial entities (NFEs) that hold financial accounts, provided they are tax residents in a country where AEOI is applicable.

How is the Automatic Exchange of Information carried out?

Andorran banks, along with certain collective investment organizations and financial investment agencies, collect information on foreign taxpayers with bank accounts in Andorra. This information is transmitted to Andorra’s Ministry of Finance, which then automatically and annually sends it to the tax authority of the corresponding country.

What information is exchanged?

Andorran financial institutions are required to collect and report the following information to Andorra’s Ministry of Finance regarding financial accounts:

Name, address, country (ies) of residence, tax identification number (TIN), and for individuals, date and place of birth.
In the case of entities with identified controlling persons, their information must also be reported.
Account number or equivalent functional identifier.
Name and identification number of the reporting financial institution.
Balance or value of the account at the end of the calendar year or at the time of account closure.
For custody accounts:
- Income from interest, dividends, and other earnings generated in the account.
- Income from the sale or redemption of financial assets.
For deposit accounts: total amount of interest paid or credited.
For other types of accounts: total gross amount paid to the account holder.
The reported information must specify the currency in which amounts are denominated.

This standard applies to both individuals and legal entities, including structures such as trusts and foundations. Additionally, identifying the beneficial owner of the account is essential, and in the case of passive non-financial entities, the individuals controlling them must be reported.

With which countries does Andorra exchange information?

Andorra has established a network of Automatic Exchange of Information agreements with various jurisdictions, including all European Union member countries and other jurisdictions that have adopted the CRS. In September 2018, Andorra carried out its first automatic tax information exchange with 41 countries, including those of the European Union. Since then, the number of jurisdictions has increased, and the General Council (Consell General) has approved the activation of AEOI with a total of 73 jurisdictions.

The complete list of countries with which Andorra exchanges information is available on the website of the Ministry of Finance of Andorra.

Obligations of banking entities under the agreement with the EU

Under the Automatic Exchange of Information Agreement with the EU, Andorran banking entities are obliged to conduct due diligence procedures to determine their clients' tax residence. For new accounts (opened from January 1, 2017), they must follow these steps:

Obtain self-certification from the account holder to determine their tax residence.
Verify the reasonableness of the client’s declaration using the information available at the time of account opening.
Apply the reasonableness test, relying on the client's declaration unless there are indications that it is incorrect or unreliable.
Base verification on documentation obtained through anti-money laundering and counter-terrorism financing procedures.

Implications of the Automatic Exchange of Information

The AEOI allows tax authorities in recipient countries to verify the income and assets their residents hold in Andorra. This strengthens international tax compliance and may result in additional tax obligations in the account holder’s country of residence. Additionally, it increases transparency in financial asset management and facilitates the detection of possible tax irregularities.

Lastly,the Automatic Exchange of Information has transformed the way investments and bank accounts are managed in Andorra. Tax transparency has become a global standard, and it is crucial for account holders to understand their tax obligations derived from this mechanism to avoid potential penalties. It is recommended to consult with a tax advisor specializing in international taxation to obtain a detailed analysis tailored to each specific situation.

At Carlota Pastora Advocats, we are available to advise you and provide the best guidance based on your specific case.