In Part I of this series, we provided an introduction to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the “Convention”) and described two methods of information exchange promoted by the Convention. In Part II, we discuss two more methods. These methods involve spontaneous exchanges of information that do not require a request be made for disclosure.
Spontaneous Exchange of Information: Certain information, individuals, or entities
The Convention provides for the spontaneous exchange of information when local tax officials believe that certain information may be relevant to tax officials of another country. Since this information has not been requested, this provision relies heavily on the co-operation and participation of tax officials, and assumes that sending useful information to another country will result in receiving useful information in return.
The OECD Manual regarding implementation of the Convention provides the following examples as grounds for a local tax official to suspect that a member country is experiencing a significant tax loss and that a spontaneous exchange of information is warranted:
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- Suspicion that payments made to residents of another country have not been reported;
- A person obtains a tax reduction or exemption in one country which may warrant an increase in tax liability in another country;
- Business dealings are being conducted in more than one country in a manner suggesting that the taxpayer may be engaged in a scheme to save taxes in both countries;
- A country has grounds to suspect that a taxpayer may be involved in a tax savings scheme in which artificial transfers of profits are taking place within groups of enterprises; and
- There is the likelihood that a taxpayer is utilizing a particular tax avoidance or evasion scheme that has been used by other taxpayers.
Note: The information sent to the other Party not only includes details regarding the transactions, holdings, and reasons for the spontaneous exchange, but also the taxpayer’s name, date of birth, tax identification number, address, and email (if known).
Industry-Wide Exchanges of Information
Rather than target a specific taxpayer, industry-wide exchanges of information examine a whole economic sector. These exchanges enable governments to compile comprehensive data on global industry practices and patterns of operation-the intention is to create more effective tax examinations based on a taxpayer’s industry, particularly:
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- Banking
- Pharmaceuticals
- Textiles
- Telecommunications
- Oil and Gas
- Electronic Components
- Insurance
- Information Technology
Any industry which commonly has cross-border, related party transactions may be subject to an industry-wide analysis of transfer pricing and financing. This may also be accompanied by subsequent or simultaneous tax examinations of taxpayers operating in that industry.
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In Part III of this series, we will address more aspects of the Convention, including Tax Examinations, Joint Audits, and Assistance in Recovery of Tax Claims.
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