Andorra
This report analyses the implementation of the AEOI Standard in Andorra 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
Andorra’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 Andorra’s international legal framework to exchange the information with all of Andorra’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 deficiencies significant to the proper functioning of an element of the AEOI Standard. More specifically, Andorra’s legal framework includes jurisdiction-specific Excluded Accounts that are not in accordance with the AEOI Standard.
Overall determination on the legal framework: In Place But Needs Improvement
Effectiveness of AEOI in practice
Andorra’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). Andorra 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
Andorra 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, Andorra:
enacted Law 19/2016, of 30 November 2016, on automatic exchange of information in tax matters as amended by Law 29/2017, Law 30/2017, and Law 19/2018;
introduced Decree of 2 August 2017, Decree of 7 February 2018, Decree of 3 October 2018 and Decree of 16 January 2019;
made reference to the Law 14/2017, of 22 June, on the prevention and fight against money laundering and terrorist financing with respect to the identification of Controlling Persons.
Under this framework Reporting Financial Institutions were required to commence the due diligence procedures in relation to New Accounts from 1 January 2017. With respect to Preexisting Accounts, Reporting Financial Institutions were required to complete the due diligence procedures on High Value Individual Accounts by 31 December 2017 and on Lower Value Individual Accounts and Entity Accounts by 31 December 2018.
With respect to the exchange of information under the AEOI Standard, Andorra:
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
Table 1 sets out the number of Financial Institutions in Andorra 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 Andorra requires the reporting of Financial Accounts based on a prescribed list of exchange partners 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 Andorra’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 Andorra 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 Andorra’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 Andorra:
the Ministry of Finance (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 Andorra’s exchange partners;
technical solutions necessary to receive and validate the information reported by Reporting Financial Institutions were put in place by establishing a secured platform for reporting that includes a validation system; 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 Andorra’s legal frameworks implementing the AEOI Standard concluded with the determination that Andorra’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 Andorra’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 Andorra 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
Andorra’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, Andorra provides for several jurisdiction-specific Excluded Accounts that are not in accordance with the requirements.
SR 1.1 Jurisdictions should define the scope of Reporting Financial Institutions consistently with the CRS.
Andorra 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.
Andorra 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, deficiencies have been identified. More specifically, Andorra provides for four jurisdiction-specific Excluded Accounts that are not in accordance with the requirements. The definition of Financial Accounts, including the provision of Excluded Accounts, is material to the proper functioning of the AEOI Standard.
Andorra should amend its domestic legislative framework to remove four entries from its jurisdiction-specific list of Excluded Accounts as they do not meet the requirements because they are not subject to regulation as a savings or investment vehicle. The entries are: i) accounts linked to insurance contracts or any other contractual arrangement for pension plans or other social welfare instruments; ii) accounts linked to insurance contracts or any other arrangement for savings products for purposes other than retirement; iii) operative current accounts exclusively used for payments associated with ownership or usage of a residence in Andorra; and iv) custodial accounts holding Andorran Government public debt securities with an average balance not exceeding USD 50 000.
SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.
Andorra 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.
Andorra 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.
Andorra’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 Andorra’s Interested Appropriate Partners (i.e. all jurisdictions that are interested in receiving information from Andorra 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.
Andorra 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.
Andorra 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.
Andorra’s exchange agreements provide for the exchange of information in accordance with the requirements of the Model CAA.
Assessed jurisdiction’s comments on the assessment of its legal frameworks
Since 2009, Andorra has initiated a transformative process to meet its commitments to transparency and meeting international standards of exchange of tax information, and has also consolidated a modern national tax and economic regulatory framework to be equivalent to those of our neighbouring countries. While it has been a challenging task, Andorra has had notable success in such a short period of time and Andorra has done it with the conviction that this was the only path to follow. The outcome of the evaluation contained in this report confirms this commitment.
Andorra’s priority is to be as competitive as possible in a globalized economy, with full commitment to transparency and compliance with international standards, while continuing to improve the legal framework and ensuring a level playing field.
Findings and conclusions in relation to effectiveness in practice
The detailed findings and conclusions in relation to effectiveness in practice of AEOI for Andorra 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.
Andorra’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). Andorra 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, Andorra implemented most of the requirements in accordance with expectations. However, an issue was identified. The key findings were as follows:
Andorra implemented an overarching strategy to ensure compliance with the AEOI Standard that includes a risk assessment that took into account a range of relevant information sources, such as annual audit reports from all Financial Institutions and the CRS information reported. Andorra’s compliance strategy facilitates compliance by providing Financial Institutions with timely information and incorporates a credible approach to enforcement. Andorra intends to keep its compliance strategy and risk assessment under review to ensure its effectiveness on an ongoing basis.
Andorra has worked effectively to understand its population of Financial Institutions, including non-regulated entities, utilising various relevant information sources, such as the list of regulated entities from the Andorran Financial Authority (AFA), the Companies Register, tax reports and the Foreign Financial Institution list for FATCA purposes. Andorra is taking action to ensure that Reporting Financial Institutions are classifying themselves correctly under its domestic rules and reporting information as required. Andorra intends to keep its understanding of its Financial Institution population up to date on a routine basis.
The Ministry of Finance, the institution responsible for implementing Andorra’s compliance strategy, appears to have the necessary powers and resources to discharge its functions. With respect to resourcing, Andorra has assigned the equivalent of two full time staff to monitor and ensure compliance by Reporting Financial Institutions, which have access to IT systems and tools to conduct risk assessments (e.g. a report validation manual and CRS data transmission system. Overall, they appear to have effectively implemented an operational plan to verify compliance with the requirements, incorporating appropriate compliance activities.
It appears that Andorra effectively verifies compliance by requiring annual audit reports on compliance with the AEOI regulations, issued by an external auditor authorised by the Ministry of Finance. This includes in-depth reviews and the inspection of records held by Reporting Financial Institutions. The audit reports must follow the requirements set out in a technical note issued by regulation and are reviewed by the Ministry of Finance. Andorra has the authority to inspect the records of Reporting Financial Institutions and to apply dissuasive penalties and sanctions for non-compliance.
It appears that Andorra is ready to take effective action to address circumvention of the requirements if such circumvention is detected. As part of its compliance activities, Andorra also verifies whether self-certifications are obtained as required and follows up on undocumented accounts.
Andorra 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.
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.
The annual audits required by Andorra of all Financial Institutions include sample monitoring of the proportion of Financial Accounts that are reported that include information on Tax Identification Numbers (TIN) and dates of birth with respect to the individuals associated with them to ensure they do not surpass domestically established thresholds. However, Andorra does not have a centralized approach to monitor this information. These data points are key to exchange partners to effectively utilise the information and are important to developing an effective compliance strategy to ensure the AEOI Standard is being effectively implemented. The level of undocumented accounts in Andorra appeared to be in line with most other jurisdictions.
Four exchange partners highlighted issues with respect to the information received, such as a high rate of missing or incorrect TINs and addresses. Follow-up discussions confirmed that Andorra is aware of these issues and has taken steps to improve the situation. More generally, many of the exchange partners that received a significant number of records from Andorra indicated that they achieved a success rate when matching the information received from Andorra 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, Andorra 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, including with respect to monitoring key data points, such as the collection rates of TINs and dates of birth. Andorra is therefore encouraged to continue its implementation process accordingly, including by addressing the recommendation made.
Andorra should implement systems to collect and monitor information on the reporting of Tax Identification Numbers and dates of birth to inform its compliance strategy.
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 Andorra 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, Andorra has the necessary systems and procedures to process them as required. It also appears that Andorra 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 Andorra 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. Andorra 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.
Andorra’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). Andorra 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).
Two exchange partners highlighted particular issues with respect to preparation and format of the information sent by Andorra. These generally related to message specifications and failed schema validation. More generally, nine (or 12.5%) of Andorra’s exchange partners reported rejecting more than 25% of the files received, of which five reported rejecting more than 50% of files received, due to the technical requirements not being met. This is a very high amount when compared to other jurisdictions and it has increased over time. It was noted that Andorra has already successfully addressed the issues raised, including by implementing system corrections to avoid file rejections.
Based on these findings it was concluded that Andorra is fully meeting expectations in relation to sorting, preparing and validating the information. Andorra 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, Andorra linked to the CTS.
Based on these findings it was concluded that Andorra is fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its partners. Andorra 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 Andorra. Follow-up discussions confirmed that Andorra has engaged with the partner to solve the issue.
Based on these findings it was concluded that Andorra is fully meeting expectations in relation exchanging information in a timely manner. Andorra 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 Andorra’s exchange partners did not raise any concerns with respect to Andorra’s use of the agreed transmission methods and therefore with Andorra’s implementation of this requirement.
Based on these findings it was concluded that Andorra is fully meeting expectations in relation to sending the information in accordance with the agreed transmission methods and encryption standards. Andorra 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.
Two exchange partners highlighted delays in the sending of status messages by Andorra, representing 2.5% of its partners. It was noted that Andorra appears to be successfully addressing the issues to ensure that status messages are sent in accordance with the requirements.
Based on these findings it was concluded that Andorra is fully meeting expectations in relation to the receipt of the information. Andorra 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.
Andorra 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 Andorra’s exchange partners and therefore with respect to Andorra’s implementation of these requirements.
Based on these findings it was concluded that Andorra appears to be meeting expectations in relation to responding to notifications from exchange partners and the sending of corrected, amended or additional information. Andorra is encouraged to continue to ensure the ongoing effectiveness of its implementation.