This week we continue with our examination of Cross-Border Information Exchange deciphering the procedural and substantive requirements of exchange contemplated by the OECD Model Agreement for Tax Information Exchange. The other important issue of Cross Border Assistance with Tax Collection will be addressed in a few weeks.
In the 15 week online International Tax courses starting September 14, we will be undertaking an in-depth analysis of the topics covered in this blog during the 10 online interactive webinars each week.
2003 OECD Model Agreement for Tax Information Exchange (TIEA)
The OECD Model TIEA was developed by an OECD Working Group consisting of the OECD Members and delegates from Aruba, Bermuda, Bahrain, Cayman Islands, Cyprus, Isle of Man, Malta, Mauritius, the Netherlands Antilles, the Seychelles and San Marino. The OECD Model TIEA obviates from several principles established in the 2003 OECD Model DTA, 2001 UN Model, 1981 OECD Convention on Tax Claims and 1988 OECD Convention on Administrative Assistance.
The Model TIEA provides that the Parties shall give “information that is foreseeably relevant to the determination, assessment and collection of such taxes, the recovery and enforcement of tax claims, or the investigation or prosecution of tax matters.” The Model TIEA allows for a two year phase between information sought in criminal tax matters, i.e. criminal tax evasion, versus the later extension to information sought in civil tax matters i.e. civil tax evasion but importantly also tax avoidance.
The TIEA obviates from the traditional requirement of dual criminality, that is the underlying crime for which information is sought should be a crime in both Parties’ domestic laws: “Such information shall be exchanged without regard to whether the conduct being investigated would constitute a crime under the laws of the requested Party if such conduct occurred in the requested Party.”
Because the OECD Model TIEA is meant to be applied to negotiations with jurisdictions that do not have a direct tax system, the TIEA provides that the Requested Party must seek requested information even when it does not need the information for its own tax purposes. But a Requested State is not obliged to exceed the power to gather information that is allowable under its laws. However, the TIEA is specific that each Party is obliged to provide:
“a) information held by banks, other financial institutions, and any person acting in an agency or fiduciary capacity including nominees and trustees;
b) information regarding the ownership of companies, partnerships, trusts, foundations, “Anstalten” and other persons,…ownership information on all such persons in an ownership chain; in the case of trusts, information on settlors, trustees and beneficiaries; and in the case of foundations, information on founders, members of the foundation council and beneficiaries….”
Procedurally, the Requesting State’s competent authority must provide, in order to “demonstrate the foreseeable relevance of the information to the request” the following information:
“(a) the identity of the person under examination or investigation;
(b) a statement of the information sought including its nature and the form in which the applicant Party wishes to receive the information from the requested Party;
(c) the tax purpose for which the information is sought;
(d) grounds for believing that the information requested is held in the requested Party or is in the possession or control of a person within the jurisdiction of the requested Party;
(e) to the extent known, the name and address of any person believed to be in possession of the requested information;
(f) a statement that the request is in conformity with the law and administrative practices of the applicant Party, that if the requested information was within the jurisdiction of the applicant Party then the competent authority of the applicant Party would be able to obtain the information under the laws of the applicant Party or in the normal course of administrative practice and that it is in conformity with this Agreement;
(g) a statement that the applicant Party has pursued all means available in its own territory to obtain the information, except those that would give rise to disproportionate difficulties.”
US TIEAs Coming into Effect since 2001
- Barbados, 3 November 1984
- Bermuda, 11 July 1986
- Cayman Islands, 27 November 2001
- Antigua & Barbuda, 6 December 2001
- Bahamas, 25 January 2002
- BVI, 3 April 2002
- Netherlands Antilles, 17 April 2002
- Guernsey, 19 September 2002
- Isle of Man, 3 October 2002
- Jersey, 4 November 2002
- Aruba, 13 September 2004
- Brazil, pending
- Liechtenstein, pending
The BVI and Cayman TIEAs are nearly duplicate.
The BVI and Cayman Islands TIEAs scope is limited to collecting information for issues of US federal “income” tax. For more broad in scope are the Isle of Man (“IOM”), Jersey, The Bahamas and Netherlands Antilles (“NLA”) TIEAs that apply to “all federal taxes”, thus by example encompassing federal estate tax, federal gift tax, federal social security tax, federal self employment tax and federal excise tax. The Barbados and Bermuda TIEAs apply to the specific federal taxes previously listed, which has the same broad affect as The Bahamas and NLA TIEAs.
Scope of Information
The BVI and Cayman TIEAs scope of information includes that “relevant to the determination, assessment, verification, enforcement or collection of tax claims with respect to persons subject to such taxes, or to the investigation or prosecution of criminal tax evasion in relation to such persons.” The IOM, Jersey, Bahamas, NLA and Bermuda TIEAs provide that information means any fact or statement, in any form, by example an individual’s testimony or documents, that is foreseeably relevant or material to United States federal tax administration and enforcement. The Barbados TIEA provides more generally for the exchange of information to administer and enforce the TIEA listed taxes covered within the scope.
Jurisdiction : Parties and Information Subject to Requests
The BVI, Cayman, IOM, Jersey, and NLA TIEAs do not limit the scope of the request to parties that are nationals or resident in BVI and Caymans, but rather allow a request for information as long as either the information is within the jurisdiction or is in the possession of, or controlled by, a party within the jurisdiction. The Bahamas treaty does not address this jurisdictional issue directly but probably will result in the same application. The Barbados TIEA also does not limit the scope of the request to resident parties. The Bermuda TIEA, when the information is sought about a non-resident of both jurisdictions, requires that the requesting party establish the necessity of the information for the proper administration and enforcement of its tax law.
Notice to Taxpayer of Request
The TIEAs do not address the issue, however the TIEAs require that enabling legislation be enacted to ensure the carrying out of the TIEAs obligations. BVI may include in its enabling legislation that the taxpayer must receive notice that a TIEA request has been made targeting the taxpayer. The Government of Switzerland, in its public statements regarding the turning over information including bank records for approximately 5,000 accounts UBS settlement with the US IRS, stated that it will post notices to the UBS account holding US taxpayers whose information has been disclosed via the tax treaty between the US and Switzerland. The IRS has in turn said that these Swiss notices will not service a notice for IRS purposes that these (alleged) tax evaders may still, if not under current audit for this non-disclosure, may still quickly take advantage of the reduced civil penalty and elimination of criminal penalty amnesty.
Check back for Part 2 on Wednesday, September 2. Prof. William Byrnes
 Agreement Between The Government Of The United States Of America And The Government Of The United Kingdom Of Great Britain And Northern Ireland, Including The Government Of The British Virgin Islands, For The Exchange Of Information Relating To Taxes, Article 1 (BVI TIEA”; Agreement Between The Government Of The United States Of America And The Government Of The United Kingdom Of Great Britain And Northern Ireland, Including The Government Of The Cayman Islands, For The Exchange Of Information Relating To Taxes, Article 1 (“CI TIEA”).
 Agreement Between The Government Of The United States Of America And The Government Of The Isle of Man For The Exchange Of Information Relating To Taxes, Art. 3.
 Agreement Between The Government Of The United States Of America And The Government Of The States Of Jersey For The Exchange Of Information Relating To Taxes, Art. 3.
 Agreement Between The Government Of The United States Of America And The Government Of The Commonwealth Of The Bahamas For The Provision Of Information With Respect To Taxes And For Other Matters, Article 1 d).
 Agreement Between The Government Of The United States Of America And The Government Of The Kingdom Of The Netherlands In Respect Of The Netherlands Antilles For The Exchange Of Information With Respect To Taxes, Article 3 f).
 Agreement Between The Government Of The United States Of America And The Government Of Barbados For The Exchange Of Information With Respect To Taxes, Article 3.
 Agreement Between The Government Of The United States Of America And The Government Of The United Kingdom Of Great Britain And Northern Ireland (On Behalf Of The Government Of Bermuda) For The Exchange Of Information With Respect To Taxes, Article 2 i).