On May 27th, 2010, the United States, along with 10 other countries, signed the Protocol amending the 1988 OECD- Council of Europe Convention On Mutual Administrative Assistance in Tax Matters. All eleven were already signatories to the underlying Convention. Four other countries- Korea, Mexico, Slovenia, and Portugal- signed both the Convention and the Protocol.
The original Convention was designed to promote cooperation in addressing the problems of tax avoidance and tax evasion as well as assisting each country with the enforcement of its’ own internal tax legislation. Covering income, estate, consumption, excise and other taxes, it provided for the exchange between nations of information needed for the levy and collection of taxes as well as for the pursuit of a tax matter in a judicial proceeding. Also authorized by the Convention were simultaneous tax examinations, Cross-border exams, and service of documents. The Convention was, however, hampered by the ability which it left to parties to invoke domestic bank secrecy legislation and “essential interests” (defined by the particular countries involved in a given situation) as reasons for refusing an application from another signatory for information.
Reflecting a sharpening of the international focus on these problems in the years following the writing of the original Convention, the G20, at its’ 2009 London meeting, called for implementation of the International Standards On the Exchange of Tax Information and for ways to enable developing countries to be part of this environment that was increasingly one of information exchange. The new protocol was written to achieve these goals. It narrows the grounds that a country may invoke for refusing an information request from another signatory, brings the Convention into compliance with the International Standards, and opens it to countries that are neither members of the OECD nor of the Council of Europe.
Based on Article 26 of the OECD Model Tax Convention and the 2002 Model Agreement on the Exchange of Information in Tax Matters, the International Standard provides for:
- “Exchange of information on request where it is “foreseeably relevant” to the administration and enforcement of the domestic laws of the treaty partner.
- No restrictions on exchange caused by bank secrecy or domestic tax interest requirements.
- Availability of reliable information and powers to obtain it.
- Respect for taxpayers’ rights.
- Strict confidentiality of information exchanged.”
The new protocol also reflects a heightened concentration on the prosecution of tax crimes. It decreases the amount of detail that the requesting country must supply about the target of the inquiry and removes some of the restrictions on the use of the information that it receives in reply. The original Convention had required that the requesting country provide the name, address, and other specifics helpful to identifying the individual about whom the information was requested. It had also permitted the respondent party to insist upon its’ grant of prior authorization before any information supplied could be used in a criminal proceeding.
Under the new protocol, the requesting country need provide only the name, address, or other helpful information about the individual of interest and may, without any grant of permission, use the data received in the full enforcement of both its’ civil and criminal law.