Countries have long recognized that, while tax administrations are confined to their respective jurisdictions, taxpayers function on a global level. In 1988, the Organization for Economic Cooperation (OECD) and the Council of Europe established the Multinational Convention on Mutual Administrative Assistance in Tax Matters (the “Convention”) in a concentrated effort to combat tax avoidance and evasion worldwide. As of 2010, all countries have been permitted to join. This effort is intended to make it easier for developing countries to reap the benefits of a new cooperative tax environment and facilitate the development of an international standard. The U.S. Department of Justice’s crackdown on identification and reporting of foreign bank accounts has certainly spurred world-wide participation. Take a look at the dates of entry of many jurisdictions here (OEDC chart of participating countries). (NOTE: China has signed on as of November 21 , 2014. See related information below).
The Convention facilitates all forms of administrative cooperation between member countries in assessing and collecting taxes. In the first segment of this four part series, we will discuss two of the cooperative methods that are endorsed by the Convention.
Exchange of Information on Request
If a tax authority of one country that is a party to the Convention makes a request for information from the authority of another country that is a party to the Convention, and the information sought is “foreseeably relevant” to the administration or enforcement of the requesting country’s laws, that information will be provided..
Such a request may include, but is not limited to, any or all of the following:
- An individual or legal entity’s residence for tax purposes, tax status, income and expenses,
- Business records, including the names, addresses, salaries, contracts, social security/id information of a company’s directors, managers and employees,
- Banking and accounting records, financial statements, copies of invoices and commercial contracts, evidence of prices paid and/or charged for goods,
- Information regarding triangular situations involving transactions between multiple companies in more than one country,
Automatic Exchange of Information
The automatic (or routine) exchange of information between countries include taxpayer information based on:
- Categories of income (interest, dividends, salaries, pensions, royalties, capital gains, commissions, etc.)
- Changes of residence, and
- Purchase or transfer of real estate.
Limitations of Information Reporting
There are some limitations to the exchange of information (see the forthcoming fourth segment of this series).
Protecting Your Personal and Business Interests Abroad
Personal and business interests abroad remain legal, potentially profitable, and are desirable for many reasons. Get educated on how hold these assets, comply with tax laws, and continue to build wealth and diversity. Moskowitz LLP, is a tax law firm with extensive experience in international tax planning and representation. Our international tax practice includes criminal tax representation and investigation for those who are accused of failing to comply with tax laws as they relate to international transactions and holdings. Our international tax attorneys are ready to help you.
In Part II of this series, we will address spontaneous exchanges of information, in which requests for information need not be made, as well as industry-wide exchanges of information.
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