European Think Tank Recommends International Tax Privacy Code

by Ulrika Lomas, Tax-News.com, Brussels

15 May 2001

Common law judges have repeatedly declared the right of a citizen to arrange his affairs so as to minimise taxation, although taxation authorities are fond of producing generalised 'anti-avoidance' laws which come into conflict with this common law right. Now, with most EU governments seemingly in favour of a system of information exchange which would no doubt lead to the imposition of tax on income streams pretty much regardless of their final nature under the law ('shoot first, and ask questions afterwards'), the European Financial Forum has produced a report which says there should be international protection for the human rights of taxpayers.

Although over 250 tax cases have gone to the European Court of Human Rights “in the field of taxpayer protection the process of international standard-setting has hardly begun” says the investigation by the European Financial Forum think tank.

“New proposals to extend massively the exchange of information between tax authorities around the world require a more systematic protection of taxpayers’ rights. Protection is not uniform from country to country and is in some respects quite haphazard”.

The Forum recommends that protection should be given against retrospective tax laws, disproportionality, unfair procedures and breach of confidentiality. Taxpayers should be given an explicit right to arrange their affairs in such a way as lawfully to minimise the burden of tax. An internationally recognised minimum standard should be established under United Nations auspices.

Last week’s United States dissociation from the OECD’s attack on ‘harmful tax competition’ should trigger a new drive to protect taxpayer rights when information is exchanged between revenue authorities, says the Forum.

“With increasing exchange of information between taxmen around the world, guarantees of confidentiality “are illusory for most taxpayers,” says the report.

“In the vast majority of countries the taxpayer is not given prior notice of the proposed exchange of information relating to him, so there is no opportunity to challenge the exchange”.

Three countries: the Netherlands, Germany and Switzerland - comply with best practice by providing notification of a proposed exchange of information and an opportunity to challenge that exchange.

But in the UK the Keith Committee recommendation “that a procedure should be introduced whereby a taxpayer should be informed of the intention to supply information of a commercially secret nature to a foreign revenue authority and should have an opportunity to challenge that exchange of information before an independent tribunal” was rejected by the Inland Revenue.

The report says that there should be no information exchange with countries not protecting taxpayer rights. “If the international community comes to recognize basic minimum standards for the protection of taxpayers, then countries which do not respect those standards - and do not sign up to the international norms - should not be entitled to receive information from those countries which do”.

The Forum believes its proposal would help to meet the concern of US Treasury Secretary Paul O’Neill who warned last week that the US “will guard against overbroad information exchanges in which foreign governments seek information for improper purposes or without proper safeguards”.

A High Degree Of Consensus On The Need For Protection

The report says that whilst there is ‘a high degree of consensus’ that taxpayer rights should be protected “no attempt has yet been made to incorporate these principles into an international legal instrument. As a result the protection of taxpayers’ rights does not apply to all countries, and is far from uniform between countries’.

The report says that tax legislation which imposes “an excessive or disproportionate burden on particular taxpayers may already be challengeable” under the European Convention on Human Rights.

It urges that “retrospective tax legislation should be outlawed” - as it was in the Italian tax law of 2000.

Taxpayers should be guaranteed minimum standards of response from tax authorities - like the three months allowed to reply to any request from a taxpayer in force in Mexico.

Taxpayers “should have the legal right to arrange their affairs in such a way as to lawfully minimise the burden of tax”, as was established in the Duke of Westminster case in Britain in 1936.

Taxpayers should be given “the right to have access to certain information held about them by the revenue authorities and to correct any misinformation” as guaranteed in Australia under the Freedom of Information Act 1982.

The right of appeal to a fair hearing before an independent and impartial tribunal within a reasonable period of time should be introduced. The right to privacy, already respected in the Netherlands, Switzerland and Sweden, so that a taxpayer should not be deterred from appealing by the prospect of their personal affairs becoming public knowledge, should be secured. “This right to privacy should continue through all levels of appeal, with the anonymity of the taxpayer being preserved”.

The new international protection should be established by the United Nations, says the report. “This work should bring together the UN’s existing work on taxation with its predominant role in the human rights field.”

The Report: The Protection of Taxpayers Rights, Philip Baker (Barrister; Visiting Professorial Fellow, Queen Mary College) and Anne-Mieke Groenhagen (Catholic University of Tilburg) £25 from European Financial Forum, 125 Pall Mall, London SW1Y 5EA (www.epfltd.org).

For further information: Graham Mather, European Financial Forum
+44 20 7839 7565 or +44 7836 325133.

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