There are several instruments that govern procedures related to information exchange between states, these are: Double Tax Treaties – DTT (aka double tax conventions – DTC), Tax Information Exchange Agreements – TIEA, Mutual Legal Assistance Treaties – MLAT and also there are some multilateral agreements available too.
MLAT in general deals with criminal matters and doesn’t always cover tax matters. Those that do cover tax matters provide mainly efficient exchange of information for tax purposes.
Most widely accepted legal bases for bilateral exchange of information with DTTs, is Article 26 of The Organisation for Economic Co-operation and Development – The OECD Model Tax Convention on Income and on Capital. This requires the parties to the treaty to share all information that is relevant to application of the treaty and that is relevant to the enforcement of domestic tax laws of the parties. Member states are not allowed to request information that would be irrelevant, neither are they allowed to engage in so called “fishing expeditions”. Request for information has to demonstrate the foreseeable relevance of the requested information.
Domestic tax interest principle and banking secrecy is not a ground to refuse sharing information. Banking secrecy is no longer compatible with the requirements of Article 26, and virtually all countries have banking secrecy and confidentiality rules. In general request for information under Article 26 is subject to strict confidentiality rules. As to the banking, all the countries with strong banking secrecy rules have to review their existing agreements and to withdraw the existing reservation to this particular article. The countries would be for example Belgium, Singapore, Switzerland, Luxembourg and Austria.
TIEAs provide for the exchange of information on request relating to a specific criminal or civil tax investigation or civil tax matters under investigation. TIEAs step in where DTTs are considered not appropriate, inapplicable, not effective enough or contains reservation.
TIEAs are largely based on the OECD Model Agreement on Exchange of information on Tax Matters (hereafter Model TIEA). The Model TIEA provides for exchange of information on request and tax examinations abroad principally for direct taxes but TIEAs may also cover other taxes such as VAT and provide for other forms of exchange than exchange on request. Parties can request or be asked for any information held by financial institution, such as banks, or persons acting in an agency or fiduciary capacity, e.g., nominees and trustees, as well as information regarding ownerships of companies, partnerships, trusts, foundations, mutual funds or any other entities, subsequently all information relating on involved parties, e.g., ultimate beneficial owners, settlors, trustees, beneficiaries, founders, partners, members etc.
Under module 6 on conducting tax examinations abroad, tax administration can authorize officials of another country to enter the territory of the requested country for examining records. To interview individuals, examine all written records available.
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