A discussion of tax matter cooperation isn’t complete without addressing the coordination of audits. In this third part of our series discussing the international effort to combat tax avoidance and evasion through the Multinational Convention on Mutual Administrative Assistance in Tax Matters (the “Convention“), we focus on the Convention’s outline for tax examinations abroad and tax examinations that simultaneously take place in more than one country.
Tax Examinations Abroad
When a person or entity and/or their tax records are located in another state, it may become necessary to conduct a tax examination abroad. In such cases, the tax officials of one country may request to participate in a tax examination by tax officials in another country. The requested country may authorize the tax examination as either:
- Passive – tax officials are permitted to merely observe all or part the tax examination abroad, which is conducted by the tax officials of the requesting country; or
- Active -tax officials are permitted to conduct interviews and examine records
Simultaneous Tax Examinations
Countries may also arrange to conduct simultaneous tax examinations, each in their own territory. This can be a very time and cost effective way to manage an audit, since both sides can exchange relevant information in real time.
Simultaneous tax examinations may be used when the following are suspected:
- Controlled financing schemes, cost allocations, price manipulations, or tax shelters
- Money laundering, kickbacks, illegal payments, bribes, and the like
- Tax avoidance and/or evasion scheme involving low tax jurisdictions
- Triangular delivery operations, reverse charges, etc.
- Transfer pricing issues
- Complex transactions, examination issues and noncompliance trends among multinational businesses in a particular industry or group of industries
- Profit allocation methods in fields such as global trading and use of new financial instruments
Assistance in the Recovery of Tax Claims
Under Article 11 of the Convention, countries are obligated to recover a tax claim on behalf of the requesting country as if it were its own tax claim.
Expert Tax Representation for Individuals and Entities with Ties to the U.S.
The tax law firm of Moskowitz, LLP represents U.S. citizens and green-card holders with investments and activities abroad; U.S. business with foreign operations; foreign businesses with operations in the U.S.; and the legal, tax, and investment professionals assisting these entities. For expert international tax representation, contact our San Francisco offices today.
In Part IV of this series, we conclude with a discussion of taxpayer rights under the Convention and the limitations in applying all of the methods outlined in Parts I, II and III.