Title: Faroe Islands’ Progress in Implementing AEOI Standard: Challenges in Effective Due Diligence

Introduction

The Faroe Islands, a small nation in the North Atlantic, have made significant strides towards implementing the Automatic Exchange of Information (AEOI) Standard set by the Organisation for Economic Cooperation and Development (OECD). However, recent peer reviews reveal challenges in ensuring their financial institutions effectively carry out due diligence procedures and reporting.

Faroe Islands’ Implementation of AEOI Standard

• Legal Frameworks

  • Commendation for having necessary legislative and international frameworks in place
  • Requirement for Reporting Financial Institutions (RFIs) to initiate due diligence and report since 2016
  • Prompt legislative amendments

• Effectiveness in Practice

  • Effective information exchange with partners
  • Concerns about due diligence procedures and reporting by RFIs

Challenges with Due Diligence and Reporting Procedures

The international peer review body outlined the following challenges:

• Lack of a Robust Domestic Administrative Compliance Framework
• Improved Collaboration between Tax Administration and RFIs
• Addressing Identified Gaps

Recommendations

To strengthen their AEOI Standard implementation, the Faroe Islands were advised to:

1. Ensure Effectiveness of Due Diligence and Reporting Procedures
   • A more robust domestic administrative compliance framework
   • Improved collaboration between the Tax Administration and RFIs
   • A focused effort to address any identified gaps

Conclusion

The implementation of the AEOI Standard, which fosters tax transparency and combats tax evasion, has been adopted by many jurisdictions globally. Peer reviews, like the one mentioned for the Faroe Islands, play a vital role in assessing each jurisdiction’s implementation to ensure global consistency and effectiveness.