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TIEAs explained


Contributed by by Dirk De Wolf
January 22, 2015



Conflict can emerge when a country must access information that may be protected by a foreign legal system, in order to enforce its own laws. These types of conflicts have generally been resolved through the execution of collaborative tax treaties. TIEAs set out a framework for exchanging information between countries to help administer and enforce tax laws. These agreements are typically based on the OECD internationally agreed standard and are seen as an important tool to prevent tax evasion in circumstances where there is no comprehensive tax treaty between the countries concerned.


Background on TIEA

A Tax Information Exchange Agreement (TIEA) is a bilateral agreement that has been negotiated and signed between two countries to establish an official system for the exchange of information relating to civil and criminal matters. Tax information exchange under a TIEA is by request only and there are strict criteria to ensure no fishing expeditions are being carried out. Information is not given automatically under a TIEA. Every TIEA has a set of guidelines and criteria which must be adhered to by the TIEA jurisdiction submitting a request for information. It is therefore important that the industry familiarizes itself with the provisions of TIEA's, especially those relating to the conditions that must be satisfied before assistance can be provided.

Information requests are sent to the Competent Authorities of the respective countries. The country requesting information must provide to the Competent Authority the reasons why the information is being requested and why it is relevant to the requesting country's inquiry. The requesting country must also provide a statement that they have pursued all means available in their own country to obtain the information they are requesting.

Each request must be in writing and must specify the following:

  • the identity of the person under examination or investigation;
  • the period for which the information is requested;
  • the nature of the information requested and the form in which the requested party would prefer to receive it;
  • the tax purpose for which the information is sought;
  • the reasons for believing that the information requested is foreseeable relevant to the tax administration and enforcement of the requesting party, with respect to the person identified in the first bullet point of this list;
  • grounds for believing that the information requested is present in the requested party or is in the possession of/or obtainable by a person within the jurisdiction of the requested party;
  • to the extend known, the name and address of any person believed to be possession of/or able to obtain the information requested;
  • a statement that the request conforms with the laws and administrative practice of the requesting party, that if the requested information was within the jurisdiction of the requesting party then the Competent Authority of the requesting party would be able to obtain the information under laws of the requesting party or in the normal course of administrative practice and that the request is in conformity with the TIEA; and
  • a statement that the requesting party has pursued all means available in its own territory to obtain the information, except where that would give rise to disproportionate difficulty.

Any request made by a party to a TIEA must contain the detail outlined above If a request is not compliant with the above, the requested party may decline to assist.


Conclusion

The objective of the OECD TIEA was for OECD members to be able to obtain tax-related information from tax havens despite bank secrecy and other confidentially laws. However, due to the fact that most tax havens jurisdictions neither levy incomes taxes nor have an income tax administration, payers of income, including banks and other financial institutions do not need to report payment transactions to the tax authority. Consequently, the tax authorities do not have the necessary information to implement a mechanism for automatic exchange of information. This is the reason that justifies exchange of information upon request in the OECD TIEA model.

 

Tags: tax | law | tax havens | Tax | enforcement | tax authority | agreements

 

 

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