The Death of Information Exchange Agreements?
The bottom line? The authors share TJN's view that TIEA's just don't do anything very useful, so powerful countries like the USA and EU member states use other tools:
"TIEAs continue to be signed weekly….. the question is whether these TIEAs really have “teeth.” The major countries of the western world have clearly started to focus on other means of obtaining data because TIEAs in practice do not work."
We've long since reached the same conclusion, as we recently argued in the Financial Times, and as explained by David Spencer, but perhaps what makes the article most interesting is the nature of the authors, all four of whom are with the law firm Baker & McKenzie.
Since the article is long and we respect copyright laws, we can only highlight some of the key grounds for the authors' conclusions.
First, they note that the majority of the bilateral agreements currently in use are based on early versions of Article 26 of the OECD's model tax convention on exchange of tax information. Thus they omit vital provisions added to the Article in 2005 relating to the need for contracting countries (the secrecy jurisdictions) to obtain information for exchange (paragraph 4), and to over-ride banking secrecy laws (paragraph 5). As the authors note:
"It is unclear how long it will take for countries to begin to alter their agreements to take into consideration new paragraphs 4 and 5 of Article 26."
And of course there's the fact that TIEAs do not provide for (require) automatic exchange of information.
Second, the article notes the weakness of the OECD's 2009 black/grey/white listing process. Having set the bar so low that the black list was emptied within a matter of days, and the grey list was rapidly vacated as secrecy jurisdictions scurried round the world signing up to the required 12 TIEAs amongst themselves, the OECD finds itself in an embarrassing mess entirely of its own creation. It now needs to review (i) which jurisdictions have been signing TIEAs with other secrecy jurisdictions (awkward! see note below on Lichtenstein), (ii) whether secrecy jurisdictions that have made it to the white list will be prepared to carry the process forwards (TJN, for example, has suggested 60 TIEAs as the minimum threshold), and (iii) whether all these new TIEAs have served any purposesince there is no available evidence that any information is actually being exchanged.
Which brings us to the author's third substantive point: the specificity of the requests that need to be made. This is where we enter the world of Catch 22: in order to request information from a contracting secrecy jurisdiction, the requesting country needs to provide a dossier of information about the specifics of the request, including:the name of the (non)taxpayer;
- details of the information being requested; no automatic exhanges.
- reasons why this information is relevant for tax purposes;
- reasons for believing the information is available to the requested party;
- names and addresses of the person(s) holding the information;
- a statement outlining what steps have been taken to obtain the information through other sources;
- a statement of the legality of the request in respect of the laws of the requesting country.
Fifth, as TJN has frequently commented, the OECD scored an embarrassing own goal by allowing secrecy jurisdictions to sign up to TIEAs with other secrecy jurisdictions. Oops! Take Liechtenstein, for example. Originally on the grey list, Liechtenstein shifted to the white list on the basis of agreements (TIEAs and in some cases double tax agreements) with the following:
- the United Kingdom (a secrecy jurisdiction)
- the United States (ditto)
- Netherlands (ditto)
- Ireland (ditto)
- Andorra (ditto)
- Antigua (ditto)
- Antigua and Barbuda (ditto)
- Monaco (ditto)
- St Kitts and Nevis (ditto)
- St Vincent and Grenadines (ditto)
- Luxembourg (ditto)
- Uruguay (ditto)
- Hong Kong (ditto)
- San Marino (ditto)
- Germany (not a secrecy jurisdiction)
- France (also not a secrecy jurisdiction)
Which brings us to our final point about the article: its title. Is the possibility for effective information exchange dead, or is it more likely the case that OECD countries (especially major secrecy jurisdictions like Austria, Luxembourg, Switzerland, UK and USA) did everything in their power to prevent tax information exchange from ever coming to life?
In this light, it's probably worth quoting the end our Financial Times article:
"A new dawn of global financial transparency? Hogwash. Or perhaps we should say whitewash."