William Byrnes' Tax, Wealth, and Risk Intelligence

This week we continue with our examination of Cross-Border Information Exchange, primarily due to the press about the UBS settlement and the soon turning over of approximately 5,000 tax-evading US account holders.  Information Exchange is of course one aspect of cross-border cooperation.  Another important aspect is Cross Border Assistance with Tax Collection which we will address within the next two weeks.

2001 UN Model DTA – Tax Information Exchange (Art. 26)

The United Nations Model is similar in scope to the OECD model displayed in my previous blogticle.  However, the UN Model defines the type of information and methodology of investigative exchange as regards the requesting state having access to cross border corporate records, though under the OECD Model such information may also be sought and methodology used.

Agreement Among The Governments Of The Member States Of The Caribbean Community For The Avoidance Of Double Taxation And The Prevention Of Fiscal Evasion With Respect To Taxes On Income, Profits, Or Gains And Capital Gains And For The Encouragement Of Regional Trade And Investment

Article 24: Exchange of Information

     1. The competent authorities of the Member States shall exchange such information as is necessary for the carrying out of this Agreement and of the domestic laws of the Member States concerning taxes covered by this Agreement in so far as the taxation thereunder is in accordance with this Agreement. Any information so exchanged shall be treated as secret and shall only be disclosed to persons or authorities including Courts and other administrative bodies concerned with the assessment or collection of the taxes which are the subject of this Agreement. Such persons or authorities shall use the information only for such purposes and may disclose the information in public court proceedings or judicial decisions.

      2. In no case shall the provisions of paragraph 1 be construed so as to impose on one of the Member States the obligation:

           (a) to carry out administrative measures at variance with the laws or the administrative practice of that or/of the other Member States;

           (b) to supply particulars which are not obtainable under the laws or in the normal course of the administration of that or of the other Member States;

           (c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process the disclosure of which would be contrary to public policy.

2000 Improving Access to Bank Information for Tax Purposes (OECD)

In 2000, the OECD issued Improving Access to Bank Information for Tax Purposes.  The 2000 OECD Report acknowledged that banking secrecy is “widely recognised as playing a legitimate role in protecting the confidentiality of the financial affairs of individuals and legal entities”.  This Report focused on improving exchange of information pursuant to a specific request for information related to a particular taxpayer.  In this regard, it noted that pursuant to its 1998 (OECD) Report, 32 jurisdictions had already made political commitments to engage in effective exchange of information for criminal tax matters for tax periods starting from 1 January 2004 and for civil tax matters for tax periods starting from 2006. 

 A Progress Report on the Jurisdictions Surveyed by the OECD Global Forum in Implementing the Internationally Agreed Tax Standard

 When we examine TIEAs, we will also look at the most recent OECD update A Progress Report on the Jurisdictions Surveyed by the OECD Global Forum in Implementing the Internationally Agreed Tax Standard issued August 25, 2009 (see http://www.oecd.org/dataoecd/50/0/42704399.pdf). The exchange of information on request in all tax matters for the administration and enforcement of domestic tax law without regard to a domestic tax interest requirement or bank secrecy for tax purposes is the standard the OECD developed in co-operation with non-OECD countries and which was endorsed by G20 Finance Ministers at their Berlin Meeting in 2004 and by the UN Committee of Experts on International Cooperation in Tax Matters at its October 2008 Meeting.  

The OECD claims that the confidentiality of the information exchanged will be protected by the recipient jurisdiction though at this time no measures have been announced to assess any safeguards should such be established.

2003 EU-US Agreements for Mutual Legal Assistance

On 25 June 2003 the US and EU signed an agreement, applying to all EU member States, for Mutual Legal Assistance.[1]  The EU-US MLA and Extradition Agreements (see my blogticle wherein I will address Extradition Agreements) do not currently extend to the United Kingdom’s Overseas Territories.  Article 16 (1)(b) of the MLA agreement enables the agreement to apply to Overseas Territories of EU member States but only where this is agreed by exchange of diplomatic note, so it is not automatic.  

The agreement’s purpose is to assist a requesting state to prosecute offences through cooperation of another State or jurisdiction in obtaining cross-border information and evidence.  This Agreement applies to tax matters involving criminal tax evasion.  This Agreement could widen the scope of financial institution and professional service provider information allowed to be requested specifically with regard to the financial information covered below.

Any party to the Agreement is required pursuant to the request to provide information regarding whether its banks, other financial institutions and non-bank institutions[2] within its jurisdiction possess information on accounts and financial transactions unrelated to accounts regarding targeted natural or legal persons.  The Agreement specifically excludes banking secrecy as a defense for non-compliance.  In order to receive banking or financial information from a financial institution or non-financial institution, the requesting State must provide the competent authority of the other State with: 

• the natural or legal person’s identity relevant to locating the accounts or transactions;
• information regarding the bank/s or non-bank financial institution/s that may be involved, to the extent such information is available, in order to avoid fishing expeditions; and
• sufficient information to enable that competent authority:  
•     to reasonably suspect that the target concerned has engaged in a criminal offence;
•     to reasonably expect that the bank/s or non-bank financial institution/s of the requested state may have the information requested; and
•     to reasonably expect that there is a nexus between the information requested and the offence.

 This multi-lateral MLAT Agreement, unlike TIEAs that have developed since 2001, contains a dual criminality requirement, but it applies retroactively to offences committed before the Agreement’s entry into force date, Article 12-(1) provides for this.  Criminal tax fraud is an underlying crime for purposes of the offence of money laundering. Thus, this Agreement probably will allow any party to the Agreement to seek financial information from another State regarding a specific taxpayer’s criminal tax fraud for offences committed before the tax year beginning  January 1, 2004.  The retroactive provision in Article 12(1) may run counter to a fundamental principle of criminal law in that a person cannot criminally suffer for an act or conduct which was not an offence at the time the act was committed or conduct took place.  Whether these MLAT agreements establish a situation of retroactive criminal application may eventually be addressed as a human rights issue.

 Tax Treaties course

 In the Tax Treaties course starting in September, Prof. Marshall Langer will be undertaking an in-depth analysis of these instruments and issues raised above.

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[1] Agreement on Mutual Legal Assistance Between the European Union and the United States of America, Article 16, Territorial Application.

[2] Including trust companies and company service providers