Wealth & Risk Management Blog

William Byrnes (Texas A&M) tax & compliance articles

Archive for October, 2009

Mutual Assistance in the Recovery of Tax Claims

Posted by William Byrnes on October 26, 2009


Historical anecdotes relating to tax information exchange and cross-border assistance with tax collection (continued)

This week I continue in my historical anecdotes leading back up to the subject of cross-border tax (financial) information exchange and cross-border tax collection.  In this blogticle I turn to the OECD Model Convention for Mutual Administrative Assistance in the Recovery of Tax Claims and the EU Directive on the Mutual Assistance for the Recovery of Claims  In our live webinars in the tax treaty course, Marshall Langer will continue to address these issues indepthly.

1981 OECD Model Convention for Mutual Administrative Assistance in the Recovery of Tax Claims

This 1981 OECD Model provides for both the exchange of information (article 5) and the assistance in recovery (article 6), which state respectively:

EXCHANGE OF INFORMATION

At the request of the applicant State the requested State shall provide any information useful to the applicant State in the recovery of its tax claim and which the requested State has power to obtain for the purpose of recovering its own tax claims.

ASSISTANCE IN RECOVERY

1. At the request of the applicant State the requested State shall recover tax claims of the first-mentioned State in accordance with the laws and administrative practice applying to the recovery of its own tax claims, unless otherwise provided by this Convention.

Procedurally, the documentation must state (1) the authority requesting, (2) name, address and other particulars for identification of the taxpayer, (3) nature and components of the tax claim, and (4) assets of which the Requesting State is aware of from which the claim may be recovered.  The nature of the tax claim must include documentary evidence in the form of the instrumentality establishing that the tax is determined, that it is due, and that it is without further recourse to contest under the Requesting State’s laws.  The applicable Statute of Limitation is of the Requesting State.

The Requested State’s obligation is limited, as under the OECD DTA Model Article 26 and 27, if the request requires the Requested State to go beyond its own or the Requesting State’s capacity to either provide information or take administrative actions pursuant to their respective internal laws.  The Requesting State has a duty to exhaust its own reasonable collection remedies before making the request which procedural requirement may be relied upon by the Requested State.  All requests are also limited by ordre public.

1988 Convention On Mutual Administrative Assistance In Tax Matters

Coming into force April 1, 1995 amongst the signatories Belgium, Denmark, Finland, Iceland, Netherlands, Norway, Poland, Sweden, and the US, this multilateral convention was originally agreed in 1988.  The Convention provides for exchange of information, foreign examination, simultaneous examination, service of documents and assistance in recovery of tax claims.

Tax covered includes income, capital gains, wealth, social security, VAT and sales tax, excise tax, immovable property tax, movable property tax such as automobiles, and any other tax save customs duties.  The tax also includes any penalties and recovery costs.  The tax may have been levied by the State and any of its subdivisions. 

The convention allows the request of information regarding the assessment, collection, recovery and enforcement of tax.  The information may be used for criminal proceedings on a case-by-case basis pursuant to the Requested State agreeing, unless the States have waived the requirement of agreement.

Spontaneous provision of information shall be provided without request when a State with information:

(1) has “grounds for supposing” a loss of tax to another State,

(2) knows that a taxpayer receives a tax reduction in its State that would increase the tax in the other State,

(3) is aware of business dealings between parties located in both States that saves tax,

(4) has grounds for supposing an artificial intro-group transfer of profits, and

(5) that was obtained from the other State has led to further information about taxes in the other State.  

Similar to the OECD Model Conventions above, procedurally the requesting documentation must state (1) the authority requesting and (2) name, address and other particulars for identification of the taxpayer.  For an information request, the document should include in what form the information should be delivered.  For a tax collection assistance request, (1) the tax must be evidenced by documentation in the form of the instrumentality establishing that the tax is determined, that it is due and that it is without further recourse to contest, (2) the nature and components of the tax claim, and (3) assets of which the Requesting State is aware of from which the claim may be recovered. 

This Multilateral Convention’s limitations follow the 1981 and 2003 OECD Model, but further provide for a non-discrimination clause.  The non-discrimination clause limits providing assistance if such assistance would lead to discrimination between a requested State’s national and requesting State’s nationals in the same circumstances.

2001 EU Directive on the Mutual Assistance for the Recovery of Claims relating to Certain Levies, Duties, Taxes and Other Measures

The OECD is not alone in its quest to improve tax information exchanges.  On June 15, 2001 the EU Commission issued a Directive that amended a previous 1976 Directive which substantially changed the impact of that 1976 Directive (on mutual assistance for the recovery of claims resulting from operations forming part of the system of financing the European Agricultural Guidance and Guarantee Fund, and of agricultural levies and customs duties and in respect of value added tax and certain excise duties).

The 2001 Directive provided that Member States enact regulations that provide for the implementation of a number of EU Directives on mutual assistance between Member States of the Community on the provision of information in respect of, and the recovery in the State of, claims made by Other Member States in respect of debts due to the Member State in question from:

  • Import & Export Duties
  • Value Added Tax
  • Excise duties on manufactured tobacco, alcohol and alcoholic beverages and mineral oils
  • Taxes on income and capital
  • Taxes on insurance premiums
  • Interest, administrative penalties and fines, and costs incidental to these claims (with the exclusion of any sanction in respect of which the act or commission giving rise to the sanction if committed in the State would be criminal in nature)
  • Refunds, interventions and other measures forming part of the system of financing the European Agricultural Guidance and Guarantee Fund
  • Levies and other duties provided for under the common organization of the market of the market for the sugar section

In summary, the Directive provides for one Member State’s competent authority at the request of another Member State’s competent authority to disclose to the requester’s competent authority any information in relation to a claim which is required to be disclosed by virtue of the Directive.
On receipt of a request, the Revenue Commissioners can decline a request to provide information in the following circumstances:

– if the information would, in the opinion of the Competent Authority, be liable to prejudice the security of the State or be contrary to public policy;

– if the Competent Authority would not be able to obtain the information requested for the purpose of recovering a similar claim, or

– if the information, in the opinion of the Competent Authority, would be materially detrimental to any commercial, industrial or professional secrets.

Any information provided to a competent authority under the enacting regulations pursuant to the Directive can only be used for the purposes of the recovery of a claim or to facilitate legal proceedings to the recovery of such a claim.

Under the Directive, the collecting Member State is obliged to collect the amount of a claim specified in any request received from a competent authority in another Member State and remit the amount collected to that competent authority.

In the Tax Treaties course, Prof. Marshall Langer will be undertaking an in-depth analysis of these instruments and issues raised above regarding the IRS efforts to collect tax via assistance from foreign states.  For further tax treaty course information, please contact me at William Byrnes (wbyrnes@tjsl.edu).

Posted in Compliance, Financial Crimes, information exchange, Legal History, OECD, Taxation | Tagged: , , , , , , | 1 Comment »

Historical Anecdotes of Tax Information Exchange (continued)

Posted by William Byrnes on October 22, 2009


This week I continue in my historical anecdotes leading back up to the subject of cross-border tax (financial) information exchange and cross-border tax collection.  In this blogticle I turn to the FATF, Edwards and KPMG reports, OECD and Offshore Group of Bank Supervisors.  In our live webinars, Marshall Langer will continue to address these issues indepthly.

1990 – 2001 Financial Action Task Force (FATF)

In 1990, the FATF established forty recommendations as an initiative to combat the misuse of financial systems by persons laundering drug money. In 1996, the FATF revised its forty recommendations to address “evolving money laundering typologies”.  The 1996 forty recommendations developed into the international anti-money laundering standard, having been endorsed by more than 130 countries.  In 2001, because of 9/11, the FATF issued eight terrorist financing special recommendations to combat the funding of terrorist acts and terrorist organizations.  Regarding the micro-economies, the activities of the Offshore Group of Banking Supervisors (OGBS) have lead to agreement with the FATF on ways to evaluate the effectiveness of the money-laundering laws and policies of its members. The difficulty is that only about a half of offshore banking centers are members of OGBS.

See the FATF Methods and Trends page for detailed typologies.

1999 Review Of Financial Regulation In The Crown Dependencies (Edwards Report)

In 1999 and 2000, the UK government in association with the governments of its Crown Dependencies and Overseas Territories assessed the territories financial regulations against international standards and good practice, as well as make recommendations for improvement where any territory fell beneath the standards.  In general the reports concluded that the regulatory regimes were good, given limited resources, but that significant further resources had to be employed.  The primary conclusions of the reports included:

(1) employment of more regulatory resources,

(2) establish an independent regulatory body in each jurisdiction,

(3) maintain records of bearer share ownership,

(4) allow disclosure of beneficial owners’ names to regulators for possible onward transmittal to other jurisdiction’s regulators, and

(5) expand company disclosure with regard to the directors.

2000 KPMG Review Of Financial Regulation in The Caribbean Overseas Territories and Bermuda

In 2000, the UK government in association with the governments of the Caribbean Overseas Territories and Bermuda commissioned the London office of KPMG to assess the territories financial regulations against international standards and good practice, as well as make recommendations for improvement where any territory fell beneath the standards.  A brief example summary for Anguilla and British Virgin Islands (BVI) is below.

Anguilla

KPMG commented that while Anguilla’s offshore regulatory operations are “well-run by skilled officers”, KPMG critiqued that the regulatory operations were not fully in accordance with international standards.  KPMG’s principal recommendations for regulatory refinement were: 

  • Shift responsibility for offshore financial services from the Governor back to the Minister of Finance, specifically the Director of the Financial Services Department.
  • Fight money laundering and other fraud by keeping records of bearer share ownership, allowing, where necessary the disclosure of the owners’ names to Anguilla’s regulators for possible onward transmittal to other jurisdiction’s regulators.
  • Expand the IBC disclosure by including director’s names in the Articles of Incorporation as well as empowering the Registrar of Companies to apply for a Court appointed inspector.
  • Require partnerships to maintain financial records.
  • Enact a new insurance law.
  • Amend the 1994 Fraudulent Dispositions and 1994 Trust Act’s disclosure requirements to prevent insertion in trust documents of clauses hampering legitimate creditors or restricting official investigations.

 The KPMG Report concluded that Anguilla’s ACORN electronic company registration system “enhanced” the regulatory environment.

British Virgin Islands

KPMG commented that while BVI’s offshore regulatory operations are well run, KPMG pointed out that the regulatory operations were not fully in accordance with international standards.  KPMG’s principal recommendations for regulatory refinement were: 

  • Consolidating control of offshore financial services in an independent Financial Services Department (which was renamed the Financial Services Commission), which at the time functioned as the regulatory authority. This required devolving powers of licensing, regulation and supervision from the Governor in Council, composed of the Governor, Attorney General, Chief Minister, and four Ministers.  KPMG urged the FSD to give up its marketing activities.  In 2002 this activity was hived off and reposed in a newly established BVI International Financial Centre.
  • Grant the Registrar of Companies power to initiate an investigation of a company and petition the courts to wind up an IBC.
  • Establish standards, based upon the International Organisation of Securities Commissions, for supervision of mutual funds, drafting a regulatory code affecting all securities and investment ventures, and increasing the Registrar of Mutual Funds’ enforcement powers.
  • Enact enforceable codes of practice for company and trust service providers and increase the supervisor’s regulatory powers.

Influenced by international reports concerning combating money laundering, the BVI passed legislation restricting the anonymity and mobility of bearer shares through requiring them to be held by a licensed financial institution. The anonymity of directors was reduced by requiring information about them to be filed preferably in the Company Registry in the jurisdiction.

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 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.  We have already covered the corresponding TIEAs established in light of this report in a previous blogticle hereunder.   Black/White and Grey lists will be covered in a future blogticle.

2002 Offshore Group Of Banking Supervisors Statement Of Best Practices

In 2002, the OGBS formed a working group to establish a statement of best practices for company and trust service providers. The working group included representatives from the micro-economies of Bahamas, Bermuda, B.V.I., Cayman Islands, Cyprus, Guernsey, Gibraltar, Isle of Man an Jersey and from the OECD members   France, Italy, the Netherlands, the U.K., as well as the relevant NGOs of the FATF, IMF, and OECD.  The terms of reference of the working groups was to “To produce a recommended statement of minimum standards/guidance for Trust and Company Service Providers; and to consider and make recommendations to the Offshore Group of Banking Supervisors for transmission to all relevant international organisations/authorities on how best to ensure that the recommended minimum standards/guidance are adopted as an international standard and implemented on a global basis”.

The Working Group concluded: “There should be proper provision for holding, having access to and sharing of information, including ensuring that – 

       (i)  information  on the ultimate beneficial owner and/or controllers of companies, partnerships and other legal entities, and the trustees, settlor, protector/beneficiaries of trusts is known to the service provider and is properly recorded;

       (ii) any change of client control/ownership is promptly monitored (e.g. in particular where a service provider is administering a corporate vehicle in the form of a “shelf” company or where bearer shares or nominee share holdings are involved); 

       (iii) there is an adequate, effective and appropriate mechanism in place for information to be made available to all the relevant authorities (i.e. law enforcement authorities, regulatory bodies, FIU’s); 

       (iv) there should be no barrier to the appropriate flow of information to the authorities referred to in 3 (iii) above; 

       (v) KYC and transactions information  regarding the clients of the Service Provider is maintained in the jurisdiction in which the Service Provider is located; 

       (vi) there should be no legal or administrative barrier to the flow of information/documentation necessary for the recipient of business from a Service Provider who is an acceptable introducer to satisfy itself that adequate customer due diligence has been undertaken in accordance with the arrangements set out in the Basel Customer Due Diligence paper.

Please contact me with any comments or follow up research materials.  Prof. William Byrnes wbyrnes@tjsl.edu

Posted in information exchange, Legal History, OECD | Tagged: , , , , , , | 2 Comments »

 
%d bloggers like this: