Taxpayer's rights and guarantees in relation to the exchange of tax information and its new paradigms. Part I

The personal experience lived, together with an extraordinary team of professionals, in setting up and implementing, back in 2010, of the Tax Information Exchange Unit, within the scope of the Federal Administration of Public Revenues (AFIP) of Argentina was followed by an intense work during more than 5 years at the head of such Unit. This included the creation of guidelines or work instructions, the management of a large number of information exchanges (EOI), under all modalities from and to the country, the implementation of the new global standards on demand (EOIR) and automatic (AEOI), of financial accounts (Common Reporting Standard, CRS) and even the peer review process of the first standard and the compliance with security and confidentiality rules to implement CRS, under the supervision of the Global Forum on Transparency and Exchange of Information for Tax Purposes. This allows me today, at a distance, to reflect, from another perspective and in another function – jurisdictional – on the situation of taxpayers, in relation to their rights and guarantees, based on a more widespread use of this essential tool in a globalized world, with respect to which it is even possible to envisage new paradigms of cooperation, based on the unstoppable digitalization.

1. Scope, principles and applicable limitations

The EOI is a species within the broader concept of international administrative cooperation in the tax field. From this collaborative tool, the Tax Administrations (TAs), limited in their actions to the borders of the respective country, may access information available in other countries to control their own taxpayers for foreign operations, activities and investments abroad. Also, international cooperation in this field may be used for debt and seizure notifications and also for enforced collection in other countries, to the extent that there are adequate legal frameworks authorizing it.

The use of this fabulous tool, which is essential in a globalized, interconnected and highly digitalized world, is not unrestricted, since it has a limited scope, responds to certain principles and presents some limitations, all within the framework of what has been agreed upon in the signed conventions or agreements and the national legislations in force, and considering mainly the existence of rights and guarantees that assist taxpayers, in general included in the legislations of the countries. If taxpayers perceive respect for their rights and guarantees, they will be more likely to collaborate with the TAs and thus the EOI will be broader, more fluid and dynamic, saving resources for both parties in the tax relationship.

The basic purpose of the EOI is the correct application of taxes and the fight against tax fraud. In principle, it is intended to be used for tax purposes, according to the scope established with respect to taxes, persons and tax periods reached, all in accordance with the provisions of the respective international legal systems (tax conventions and specific agreements, bilateral or multilateral) signed and national. Even the standard on request has advanced to the point where requests can be made for groups of people, but this does not fall into “fishing expeditions” that are known not to be covered by it.

In the EOIR, it is necessary to exhaust the instances in the country before requesting assistance abroad (principle of subsidiarity). It is not possible to have another tax office work without first trying to obtain the information in question in the respective country. Nor can information be requested that could not be provided (due to legal limitations, for example), in the case of requesting it from the country (principle of reciprocity). In no case may a State be compelled to take administrative measures contrary to its own legislation or administrative practice, or to those of the other Contracting State.

Worth mentioning is also a prohibition for the administration in its discretional scope, to order something that can be considered excessive, exorbitant or disproportionate (principle of proportionality). The possibility of refusing a request for information when it involves discrimination against a citizen of the requested country (principle of non-discrimination) should also be noted.

The current standards provided for in model tax treaties and specific agreements, as supranational norms in the legal hierarchy, eliminate any possibility of opposing national limitations due to bank secrecy, as well as with respect to the national domestic interest, as a requirement to proceed with a request. However, a word of caution is in order with respect to other limitations that remain and may arise from the respective national laws, namely:

• Prohibition of disclosure of trade and industrial secrets: Paragraph 34 of the Manual for Implementing the EOI provisions of the OECD, 2006, states that “where the application concerns information which may involve a trade secret, the competent authority may provide such information if it is satisfied that the laws and practices of the requesting state in conjunction with the confidentiality obligations imposed by Article 26, paragraph 2 of the Model Tax Convention (by Article 8 of the Model Agreement) ensure that the information cannot be used for unauthorized purposes, against which the rules relating to trade secrets or confidentiality are intended to operate. If the requested party decides to provide the information, it should indicate that a trade or other secret is involved, so as to enable the requesting party to take any additional or special measures that may be appropriate to ensure the strictest confidentiality”.

• The professional secrecy of lawyers is one of the strongest obstacles to the EOI, as well as a duty that weighs on the professional not to declare on their clients, given the need to protect their personal and family privacy.  The art. 7.3 of the OECD Model Agreement and paragraphs 19.3 and 19.4 of the comments on Article 26.3 of the OECD Model Tax Treaty indicate that, where the information requested involves confidential communication between a client and a lawyer or other recognized legal representative (solicitor) in the exercise of his or her functions (where such communication is for the purpose of seeking or providing legal advice or for use in ongoing or contemplated legal proceedings), the request for information may be declined.  The rules for determining which communication is confidential are not to be interpreted or applied broadly, and thus the commentaries to the OECD Model Agreement indicate that “documents and records provided to a lawyer, solicitor or other legal representative which have been made available to the latter for the purpose of avoiding disclosure are not regarded as confidential communications”. Similarly, “where the right to confidentiality under the domestic law of the requested Party is more limited than that defined in paragraph 3 (for example, where the law of the requested Party does not provide for such a right to confidentiality in tax matters or in criminal tax matters), a requested Party may not refuse a request”. Although the secrecy relating to the “lawyer-client” relationship is mentioned here, it is well known that the various professions regulate their own secrecy with respect to the work they perform.

   

• Protection of personal data: With respect to the protection of personal data, a first aspect to consider is what type of information could be exchanged, that is, what qualifies as tax information. On the other hand, the information provided should only be used for the purposes stipulated in the convention or instrument in question, and in the event that the duties of confidentiality and data protection affecting a particular taxpayer are not respected, the person concerned may invoke the illegality of the evidence before the courts of the State receiving the data transmitted, and claim the criminal or administrative liability of the agent who improperly disclosed the data, as well as claim the State’s economic liability.

• Right to non-self-incrimination: in this respect, the comments on Article 7 of the OECD Model Agreement, in its paragraph 73, when discussing the principle of proportionality, states that “most countries admit in their domestic legislation that it is not possible to obtain information from a person when that person is exercising the right to not self-incriminate. A requested Party may therefore refuse a request if it appears that, in the same circumstances, the requesting Party would have had no possibility of obtaining the information because of its own rules against self-incrimination”.

“Due to its length, the analysis on the subject will continue in other posts on the Blog that will be published in the coming days. Until then…”

 

Disclaimer: Content posted is for informational & knowledge sharing purposes only and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/ interpretation of the publisher is based on the available Law, guidelines, and information. Each reader should take due professional care before you act after reading the contents of that article/ post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide and should not be relied on for tax or accounting advice.