William Byrnes' Tax, Wealth, and Risk Intelligence

This week we continue with our examination of Cross-Border Information Exchange deciphering the Legal Privilege Limitation requirements of exchange contemplated by the OECD Model Agreement for Tax Information Exchange.  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.

Tax Evasion Request (1 January 2004)

In the BVI TIEA, criminal tax evasion, for which the exchange of information begins 1 January 2004, is defined:

“”criminal tax evasion” means willfully, with dishonest intent to defraud the public revenue, evading or attempting to evade any tax liability where an affirmative act constituting an evasion or attempted evasion has occurred. The tax liability must be of a significant or substantial amount, either as an absolute amount or in relation to an annual tax liability, and the conduct involved must constitute a systematic effort or pattern of activity designed or tending to conceal pertinent facts from or provide inaccurate facts to the tax authorities of either party. The competent authorities shall agree on the scope and extent of matters falling within this definition;” (emphasis added)[1]

The Cayman TIEA does not contain the last emphasized sentence.  The Bahamas TIEA states more broadly that “”criminal matter” means an examination, investigation or proceeding concerning conduct that constitutes a criminal tax offense under the laws of the United States.  The IOM and Jersey TIEAs define criminal tax matters as those “involving intentional conduct which is liable to prosecution under the criminal laws of the applicant Party.”  Barbados and Bermuda TIEAs do not contain a specific definition of criminal tax evasion, that is the USA may request information regarding civil tax matters.

From January 1, 2006, information regarding any civil tax matters may be requested by the USA from all of the jurisdictions.  This date coincides with the date established by the OECD it demanding its commitment letters from targeted tax havens regarding the 1998 and 2000 Reports.

Legal Privilege Limitation

The BVI, Cayman and Bahamas TIEAs contain a protection for information subject to legal privilege.  The BVI TIEA broadly define legal privilege:

     “items subject to legal privilege” means:

       (a) communications between a professional legal adviser and his client or any person representing his client made in connection with the giving of legal advice to the client;

       (b) communications between a professional legal adviser and his client or any person representing his client or between such an adviser or his client or any such representative and any other person made in connection with or in contemplation of legal proceedings and for the purposes of such proceedings; and

       (c) items enclosed with or referred to in such communications and made –

              (i) in connection with the giving of legal advice; or

              (ii) in connection with or in contemplation of legal proceedings and for the purposes of such proceedings, when the items are in the possession of a person who is entitled to possession of them.

              Items held with the intention of furthering a criminal purpose are not subject to legal privilege, and nothing in this Article shall prevent a professional legal adviser from providing the name and address of a client where doing so would not constitute a breach of legal privilege; (emphasis added)

The Cayman TIEA does not contain the provision that a professional legal advisor is not prevented from providing a client’s name and address.  The Bahamas definition is more restrictive in that it does not contain the clause (c) regarding items enclosed in legally privileged communications.  The NLA and Barbados TIEAs incorporate legal privilege pursuant to its definition under domestic law in that the TIEA limits the Requested Party to the information collection means available under domestic law.  Whereas the IOM TIEA contains a definition of legal privilege, Jersey does not, though like NLA and Barbados, such definition and limitation is incorporated.  Like Cayman, the IOM TIEA defines legal privilege as:

       (i) communications between a professional legal adviser and his client or any person representing his client made in connection with the giving of legal advice to the client;

       (ii) communications between a professional legal adviser and his client or any person representing his client or between such an adviser or his client or any such representative and any other person made in connection with or in contemplation of legal proceedings and for the purposes of such proceedings; and

       (iii) items enclosed with or referred to in such communications and made-

             (a) in connection with the giving of legal advice; or

            (b) in connection with or in contemplation of legal proceedings and for the purposes of such proceedings, when they are in the possession of a person who is entitled to possession of them.

Items held with the intention of furthering a criminal purpose are not subject to legal privilege.

Procedural Application – Fishing Expeditions

The BVI TIEA provides in order to demonstrate the relevance of the information sought to the request that the US shall provide the following information:

       (a) the name of the authority seeking the information or conducting the investigation or proceeding to which the request relates;

       (b) the identity of the taxpayer under examination or investigation;

       (c) the nature and type of the information requested, including a description of the specific evidence, information or other assistance sought;

       (d) the tax purposes for which the information is sought;

       (e) the period of time with respect to which the information is requested;

       (f) reasonable grounds for believing that the information requested is present in the territory of the requested party or is in the possession or control of a person subject to the jurisdiction of the requested party and may be relevant to the tax purposes of the request;

       (g) to the extent known, the name and address of any person believed to be in possession or control of the information requested;

       (h) a declaration that the request conforms to the law and administrative practice of the requesting party and would be obtainable by the requesting party under its laws in similar circumstances, both for its own tax purposes and in response to a valid request from the requested party under this Agreement.

The Cayman TIEA does not include clauses (a) or (e) above, but practically such information should be included in any valid request under any TIEA. Jersey and IOM’s TIEA is similar to the BVI TIEA in respect of this section, absent clause (a).  NLA does not contain this section in its TIEA, but such information by the USA should be provided.

Time to Comply

The BVI and Cayman TIEAs allow them 60 days to identify of any deficiencies in a request and provide the US notice.  If BVI or Cayman will not provide requested information, or cannot, it must immediately notify the US.

Check back for Part 2 on Thursday, September 3.  Prof. William Byrnes

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[1] BVI TIEA, Article 4.