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

Posts Tagged ‘tax information exchange’

Immigration, Tax Planning, & AML Compliance for High Net Wealth Families & Executives

Posted by William Byrnes on June 6, 2010


The course instructors will “bridge the gap” between the often complex and quite intricate realm of international tax, estate planning, and immigration law. There is an obvious “nexus” between working professional immigrants, “high net worth immigrants,” and their financial dealings as to taxation and estate planning.  The course will first provide a survey of the foundational principles of U.S. international tax and estate planning.  The course will then provide a survey of relevant immigration visa categories, their status requirements, and “triggers” that have international tax and/or estate planning consequences.  Then the course will apply the legal principles with US case scenarios in order to establish a greater understanding between the “nexus” of international tax and immigration laws.

Next the instructors will lecture on the international movement of high net wealth executives and families: tax and immigration issues and strategies.  Finally the instructors will analyze the often overlooked overlap amongst financial reporting requirements, with a particular emphasis on the Patriot Act and related requirements.

Instructors: Prof. Fred Ongcapin is an Adjudications Officer (Policy) for the Policy and Regulation Management Division, Citizenship and Immigration Services, U.S. Department of Homeland Security, Headquarters Office, Washington D.C. In his current position he has authored and led to the publishing of numerous national policy guidance memos and formal regulations as to immigration law for the U.S. Department of Homeland Security. He also provides regular statutory and policy guidance concerning immigration policy for Citizenship and Immigration Services field offices throughout the country due to his subject matter expertise in immigration law. On several occasions, Fred has represented Citizenship and Immigration Services before senior policy level liaison meetings with the U.S. Department of State, U.S. Department of Justice, and certain Congressional Committees on Immigration.

Prof. Marshall Langer, the globally renown international tax author, lecturer and practitioner. Famed for Langer’s Practical International Tax Planning and for Rhoades & Langer U.S. International Tax and Treaties. Prof. Langer retired Of Counsel at the firm of Shutts & Bowen, London, England, and Miami, Florida.

Prof. William Byrnes has been an author and editor of 10 books and treatises and 17 chapters for Lexis-Nexis, Wolters Kluwer, Thomson-Reuters, Oxford University Press, Edward Elgar, and Wilmington. He is currently working on several Concept Maps for Lexis-Nexis Tax Law Center. This year he takes over as the author of National Underwriters’ Advanced Underwriting Service – the dominant information service in the insurance/financial planning industry with tens of thousands of subscribers.

In professional practice William Byrnes was a senior manager, then associate director of international tax for Coopers and Lybrand which subsequently amalgamated into PricewaterhouseCoopers, practicing in Africa, Europe, Asia, and the Caribbean. He has been commissioned and consulted by a number of governments on their tax and fiscal policy from policy formation to regime impact.

Delivery: 14 hours of live lecture and case studies via WIMBA web-conferencing – requires no download and works on PC/Mac.

Dates:  June 8, 15, 22 (Tues) 9pm-10pm (Eastern); June 29 (Tues) 9pm – midnight (Eastern); July 22 & 29 (Thurs) 10am-11am (Eastern); Aug. 5, 12, 19, 26 (Thurs) 9pm – 10pm (Eastern); Sept. 2 (Thurs) 9pm – 11pm (Eastern)

Recordings: all lectures are made available within 1 hour after class – on-demand video streaming and MP4 download until September 5th.

Contact: Prof. William Byrnes, Associate Dean – wbyrnes@tjsl.edu +1 (619) 297-9700 x 6955 for a registration form. Payments are only made by credit card to Thomas Jefferson School of Law. The fee is $49 per lecture hour ($686 for 14 hours) and includes electronic course materials.

Posted in Courses, Teaching Opportunities, Uncategorized | Tagged: , , , , , , , , , , , , , , , | Leave a Comment »

Historical Anecdotes Regarding the European Union Savings Directive

Posted by William Byrnes on November 1, 2009


Historical Anecdotes Regarding the European Union Savings Directive

This week I continue in my historical anecdotes on the subject of cross-border tax (financial) information exchange and cross-border tax collection in the context of the European Union Tax Savings Directive.  In our live course webinars, we will continue our indepth address of the related compliance issues.

2003 Savings Directive Agreement

On 21 January 2003, the EU Finance Ministers meeting within the Council of Ministers (“the ECOFIN Council”) reached a political agreement on a “tax package”, which comprises a Code of Conduct for business taxation, a proposal for a Community Directive on the taxation of interest and royalty payments and a proposal for a Community Directive on the taxation of income from savings (“the Savings Directive”).  Furthermore on 7 March the ECOFIN Council agreed the text of the Savings Directive, although the Directive has not yet been formally adopted.

In its current form, the Savings Directive only applies to interest paid to individuals, and in particular it does not apply to companies.

Article 2

Definition of beneficial owner

1. For the purposes of this Directive, ‘beneficial owner’ means any individual who receives an interest payment or any individual for whom an interest payment is secured…”[1]

The Savings Directive requires an automatic, cross-border, exchange of information between the EU members states and their territories.[2]

EXCHANGE OF INFORMATION

Article 8

Information reporting by the paying agent

1. Where the beneficial owner is resident in a Member State other than that in which the paying agent is established, the minimum amount of information to be reported by the paying agent to the competent authority of its Member State of establishment shall consist of:

(a) the identity and residence of the beneficial owner established in accordance with Article 3;

(b) the name and address of the paying agent;

(c) the account number of the beneficial owner or, where there is none, identification of the debt claim giving rise to the interest;

(d) information concerning the interest payment in accordance with paragraph 2.

Article 9

Automatic exchange of information

1. The competent authority of the Member State of the paying agent shall communicate the information referred to in Article 8 to the competent authority of the Member State of residence of the beneficial owner.

2. The communication of information shall be automatic and shall take place at least once a year, within six months following the end of the tax year of the Member State of the paying agent, for all interest payments made during that year.

Three EU members, the territories and dependencies of the UK, and to date the accession state of Switzerland have been granted a transitional period of time to implement automatic exchange of information.  The transitional period of time is to last until all listed non-EU members, i.e.  Switzerland, Monaco, Andorra, Liechtenstein, and the USA, have entered into automatic exchange of information with the EU member states.  During the transition, these States and jurisdictions must collect a withholding tax of which 75% of that tax must then be forward to the Member State of residence of the beneficial owner of the interest.  

Article 11

Withholding tax

1. During the transitional period referred to in Article 10, where the beneficial owner is resident in a Member State other than that in which the paying agent is established, Belgium, Luxembourg and Austria shall levy a withholding tax at a rate of 15 % during the first three years of the transitional period, 20 % for the subsequent three years and 35 % thereafter.

Each of the twenty-five members (including the accession of the new group of ten members), their relevant territories, and the non-EU members acceding to the Directive is allowed to interpret the Directive for legislative implementation under its national law.

Tax Based Elasticity and Capital Flight

The Savings Directive recognises the issue of capital flight due to the sensitivity of taxpayers to exchange of information.  At paragraph 24 it states, “So long as the United States of America, Switzerland, Andorra, Liechtenstein, Monaco, San Marino and the relevant dependent or associated territories of the Member States do not all apply measures equivalent to, or the same as, those provided for by this Directive, capital flight towards these countries and territories could imperil the attainment of its objectives. Therefore, it is necessary for the Directive to apply from the same date as that on which all these countries and territories apply such measures.calls for.”  This capital flight issue is based upon three historical benchmarks regarding the imposition of withholding tax on interest and the immediate and substantial impact that withholding tax on interest has on capital flight.  The benchmarks are (1) the 1964 US imposition of withholding tax on interest that immediately led to the capital flight of hundreds of million of dollars and the corresponding creation of the London euro-dollar bond market; (2) the 1984 US exemption of withholding tax on portfolio interest that immediately led to the capital flight from Latin America of US$300 billion to US banks; and (3) the 1989 German imposition of withholding tax that led to immediate capital flight to Luxembourg and other jurisdictions with banking secrecy of over a billion DM, so substantial that the tax was repealed but four months after imposition.  Please refer to my earlier blogticles for further information about this topic.

Please contact me with any comments or follow up research materials.

Prof. William Byrnes wbyrnes@tjsl.edu


[1] COUNCIL DIRECTIVE 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments.

[2] The directive does not apply to Bermuda, but Bermuda has entered into agreements that have equivalent measures.

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

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 »

Caribbean Historical Anecdotes of its Financial Centers

Posted by William Byrnes on September 26, 2009


I continue in my historical anecdotes leading back up to the subject of cross-border tax (financial) information exchange and cross-border tax collection.  This week, we start with the United Nations Declaration Regarding Non-Self Governing Territories, which is in the UN Charter, then turn the a few UK Reports about her territories, and the UN and OECS Human Development Indices.

Marshall Langer will be addressing these much more in-depthly during his lectures in October and November.

Chapter XI

Declaration Regarding Non-Self-Governing Territories

Article 73 

Members of the United Nations which have or assume responsibilities for the administration of territories whose peoples have not yet attained a full measure of self-government recognize the principle that the interests of the inhabitants of these territories are paramount, and accept as a sacred trust the obligation to promote to the utmost, within the system of international peace and security established by the present Charter, the well-being of the inhabitants of these territories, and, to this end:

     a. to ensure, with due respect for the culture of the peoples concerned, their political, economic, social, and educational advancement, their just treatment, and their protection against abuses;

     b. to develop self-government, to take due account of the political aspirations of the peoples, and to assist them in the progressive development of their free political institutions, according to the particular circumstances of each territory and its peoples and their varying stages of advancement;

     c. to further international peace and security;

      d. to promote constructive measures of development, to encourage research, and to co-operate with one another and, when and where appropriate, with specialized international bodies with a view to the practical achievement of the social, economic, and scientific purposes set forth in this Article; and

     e. to transmit regularly to the Secretary- General for information purposes, subject to such limitation as security and constitutional considerations may require, statistical and other information of a technical nature relating to economic, social, and educational conditions in the territories for which they are respectively responsible other than those territories to which Chapters XII and XIII apply.

 Article 74 

Members of the United Nations also agree that their policy in respect of the territories to which this Chapter applies, no less than in respect of their metropolitan areas, must be based on the general principle of good-neighbourliness, due account being taken of the interests and well-being of the rest of the world, in social, economic, and commercial matters.

 1999 Partnership For Progress And Prosperity: Britain And Her Overseas Territories 

In 1999, Robin Cook presented to Parliament a White Paper Partnership for Progress and Prosperity: Britain and the Overseas Territories (the “White Paper”).  The White Paper’s primary conclusion was that the Overseas Territories had successfully diversified their economies through developing global market positions in the offshore financial services industry but that the Overseas Territories required reputation maintenance through regulatory enhancement in order to maintain their global market position within this industry.  The White Paper noted that the Caribbean Overseas Territories were potentially susceptible to money laundering and fraud because of their proximity to drug producing and consuming countries, inadequate regulation and strict confidentiality rules. 

 Also, the White Paper proposed that Britain grant full citizenship, i.e. with right of abode, to the Overseas Territories citizens.  But this right of citizenship was not in exchange for implementing the more extensive regulatory regimes in alignment with the OECD Report.  In 2002, the UK enacted the British Overseas Territories Bill[1] in order to fulfil the Government’s commitment, announced in the White Paper, to extend full British citizenship to those who were British Dependent Territories citizens. 

Free Movement of Persons 

Note that the nationals of the US, Netherlands, French, Portugal and Spanish territories have full parent State nationality with rights of abode.  The non-colony status jurisdictions charged further discriminatory treatment, that they did not have the same rights of free movement and abode as the colonial nationals. 

 In its Report, the OECD members targeted trade in capital and services with the stick of sanctions, but did not offer a carrot, much less a lifeline, to the independent micro-economies.  Some Island states’ pundits allege that the OECD drive against tax competition is a geo-political move for re-(economic) colonization.  These commentators propose that the inevitable declining human development impact of the OECD’s drive against tax competition will be a brain drain to the OECD countries via legal and illegal immigration.     

The United Nations Human Development Report for 2009, to be released within a few weeks in October, will address the international issue of the movement of persons. 

The OECS Human Development Report 2002 

Because the UN Human Development Annual Report does not include all the Caribbean Islands, such as the non self-governing former colonies, the OECS Human Development Report is critical for the quantitative measuring and qualitative analysis of social and economic indicators for Eastern Caribbean territories, and to then be able to contrast these to other UN members captured by the UN Report.

It should be noted that the OECS Report noted that the Caribbean financial centers held approximately US$2 trillion in assets from international financial center activities.  The OECS stated that these international financial services contributed foreign exchange to its members’ economies, revenue to its governments, and that the sector created employment while developing human resources and contributing to the growth of technology.  The OECS concluded that the most important impact to the economies from international financial services was economic diversification.[2] 

1990 Gallagher Report 

In 1989, HMG commissioned the Gallagher Report (Survey of Offshore Finance Sectors of the Caribbean Dependent Territories) with the intent to review whether its territories’ offshore financial services sectors regulations met international standards.  Overall, the Gallagher Report presented proposals to extend the range and scope of offshore financial services in the COTs through the introduction of new measures designed to improve the regulatory framework especially with relation to banks, trusts, insurance and company management.  The Gallagher Report made specific recommendations to several jurisdictions.

By example, with regard to the British Virgin Islands, the Gallagher Report presented proposals to extend the range and scope of offshore financial services through the introduction of new measures designed to improve the regulatory framework as it relates especially to banks, trusts, insurance and company management.  Following the Gallagher Report’s proposals, the BVI government revised in 1990 the 1984 IBC Act, enacted a modern Banks & Trust Companies Act to replace the 1972 legislation; and passed the Company Management Act requiring companies providing registration and managerial services to be licensed.  In 1993, BVI enacted a Trustee (Amendment) Act in order to modernise the 1961 Trust Ordinance and the following year passed the 1994 Insurance Act.

With regard to Anguilla, Gallagher’s Report criticised the lack of up-to-date legislation, inadequate supervision of its financial sectors, and a confidentiality statute that encouraged “the type of business best avoided”.  Gallagher’s Report recommended the enactment of three draft laws, as well as the repeal of the Confidential Relationships Ordinance 1981.[3]  Following Gallagher’s Report, in 1992 the British Government aid agency engaged the consultancy firm of Mokoro to advise the Government of Anguilla on its economic strategy for the 21st century.  The Mokoro Report concluded that the development of additional economic activity in Anguilla principally required the development of the financial sector.  The 1993 Report stated that the financial sector’s socio-economic impact would be: 

  • Substantial additional government revenue.
  • Sizeable increase in the contribution of professional services to the GDP (Gross Domestic Product).
  • Range of new employment opportunities for young people.
  • Increase in professional trading.
  • Inward migration of Anguillans living overseas.
  • Increase in the number of visitors and a decrease in their seasonability.

As a result of the Report, Anguilla received a three-year 10.5 million English pound grant from the Minister for Overseas Development to research and to develop a Country Policy Plan.  In 1994, Anguilla updated its international financial center through enacting a package of twelve statutes.

Please contact me for further information or research that you would like to share on these topics at http://www.llmprogram.org.


[1] Bill 40 of 2001-2002 was enacted to fulfil the Government’s commitment, announced in March 1999 in its White Paper, to extend full British citizenship to those who were British Dependent Territories citizens.

[2] 2002 OECS Report p.23.

[3] The Confidential Relationships Ordinance, 1981, made it illegal to give other Governments information, including information regarding tax offences.

Posted in information exchange, Legal History, OECD, Taxation | Tagged: , , , , , , , | Leave a Comment »

OECD MODEL AGREEMENT FOR TAX INFORMATION EXCHANGE (TIEA) PART 1

Posted by William Byrnes on August 29, 2009


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.

Tax Covered

The BVI and Cayman Islands TIEAs scope is limited to collecting information for issues of US federal “income” tax.[1]  For more broad in scope are the Isle of Man (“IOM”)[2], Jersey[3], The Bahamas[4] and Netherlands Antilles[5] (“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[6] and Bermuda[7] 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


[1] 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”).

[2] 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.

[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.

[4] 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).

[5] 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).

[6] 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.

[7] 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).

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