Welfare Implications of AEoI

The Automatic Exchange of Information (AEoI) is a tax standard that governs how tax authorities of participating countries exchange information related to taxpayers’ foreign investments. We quantify the mismatch between costs and benefits of information exchange agreements and investigate the impact of foreign investment taxation and costs associated with information reporting requirements on the welfare of compliant countries. This paper shows that AEoI-abiding economies would entail substantial welfare losses. For any combination of interest rate, foreign earnings taxation and compliance cost, the welfare costs of AEoI are larger for the source (small open) economy than the revenue is for the residence country. Without commitment and enforcement, countries might be tempted to deviate from such agreements and share information only partially. The paper’s result provides a rationale for sharing of AEoI infrastructure costs among jurisdictions.