The following article provides an overview of tax information exchange agreements and double taxation agreements including specific details for Guernsey, Isle of Man and Ireland.
What is a Tax Information Exchange Agreements (TIEA)
A TIEA is an agreement between countries to co-operate in tax matters through an exchange of information. Most TIEAs are based on the Organisation for Economic Co-operation and Development (OECD) Model Agreement which includes specific rules and procedures on how information exchange is to occur. The contracting parties are left to specify the criteria before information is exchanged.
TIEA’s cannot be used to allow a contracting party to enter into a ‘fishing expedition’ for information; there must be genuine and legitimate grounds for any request for information.
The TIEA includes provisions regarding how information can be requested. In essence, the investigating body would first need to determine what they require before they request it – completion of a legal document detailing the case would be required before a request can be made for an individual or company’s tax record.
What is Double Taxation Agreements (DTA)
A DTA is an agreement between countries to clarify the situation when a taxpayer might find themselves subject to taxation in more than one country for example, an individual who resides in both France and the UK may find themselves taxable to income in both countries except where the DTA stated otherwise.
The main purpose of a DTA is to foster foreign investment by preventing income or profits from international economic activity being taxed twice.
These agreements also meet the OECD’s standards on international tax transparency and exchange of information which has led to a recent increase in countries signing DTAs also. This is because Article 26 of the current version of the OECD Model Convention (which was agreed in 2005) has revised and extended the provision for exchange of information. It now extends to exchange of information which is ‘foreseeably relevant’ for the ‘administration or enforcement of taxes of any kind’ rather than information exchange relevant for the purposes of the treaty. It also forbids banking secrecy to be used as a reason to refuse to exchange information.
What are the main differences between TIEAs and DTAs
A typical TIEA differs from a DTA as the TIEA only deals with the provision of information for tax purposes. The main purpose of a DTA is to protect a taxpayer from being taxed twice where the same income is taxable in two countries.
Whilst a DTA does contain a ‘tax information’ provision it is less detailed to that of a TIEA. Where a DTA is already in existence a TIEA can be used to complement it.
Both DTAs and TIEAs permit automatic exchange of information; however they both only require information to be exchanged ‘upon request’
Sanctions that could be imposed for not complying with the internationally agreed tax standard rules
The possible sanctions include higher disclosure requirements for individuals and companies using blacklisted countries, withholding taxes on transactions with blacklisted countries, reduction in aid, political pressure on global companies to withhold investment, tax treaty review, or denial of interest paid in a blacklisted country to offset tax.
Isle of Man
The Isle of Man was included on the OECD white list of jurisdictions that have substantially implemented the internationally agreed tax standards.
This shows that the Isle of Man is viewed by the OECD as a co-operative, transparent and internationally responsible jurisdiction.
The Isle of Man has signed a total of 28 TIEAs are in force with Australia, Bahamas, Canada, China, Czech Republic, Denmark, Faroe Islands, Finland, France, Germany, Greenland, Iceland, India, Ireland, Japan, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovenia, Sweden, Turkey, the United Kingdom and the United States.
The Isle of Man has signed 9 DTAs all of which are in force; these are with Bahrain, Estonia, Guernsey, Jersey, Malta, Qatar, Seychelles, Singapore and the United Kingdom.
Guernsey was included on the OECD white list of jurisdictions that have substantially implemented the internationally agreed tax standards. This shows that the Guernsey is viewed by the OECD as a co-operative, transparent and internationally responsible jurisdiction.
Guernsey has signed a total of 43 TIEAs and 28 of these are in force with Argentina, Australia, Bahamas, Bermuda, British Virgin Islands, Canada, Cayman Islands, China, Czech Republic, Denmark, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Hungary, Iceland, India, Indonesia, Ireland, Italy, Japan, Latvia, Lesotho, Lithuania, Macao, Mauritius, Mexico, the Netherlands, New Zealand, Norway, Poland, Romania, San Marino, Seychelles, Slovenia, South Africa, St Kitts and Nevis, Sweden, the United Kingdom and the United States.
Guernsey has 13 DTAs signed and in force with Cyprus, Hong Kong, Isle of Man, Jersey, Liechtenstein, Luxembourg, Malta, Mauritius, Monaco, Qatar, Seychelles, Singapore and the United Kingdom.
Republic of Ireland
Ireland is included on the OECD white list of jurisdictions that have substantially implemented the internationally agreed tax standards.
This shows that the Ireland is viewed by the OECD as a co-operative, transparent and internationally responsible jurisdiction.
Ireland has signed a total of 25 TIEAs and 22 of these are in force with Anguilla, Antigua and Barbuda, Argentina, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Commonwealth of The Bahamas, the Cook Islands, Dominica, Gibraltar, Grenada, Liechtenstein, the Marshall Islands, Montserrat, Samoa, Saint Christopher (Saint Kitts) and Nevis, San Marino, St. Lucia, St. Vincent & the Grenadines, the Turks & Caicos Islands and Vanuatu.
Ireland has signed 72 DTAs and 70 of these are in force with Albania, Armenia, Australia, Austria, Bahrain, Belarus, Belgium, Bosnia Herzegovina, Botswana, Bulgaria, Canada, Chile, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, India, Israel, Italy, Japan, Korea (Rep of), Kuwait, Latvia, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mexico, Moldova, Montenegro, Morocco, Netherlands, New Zealand, Norway, Pakistan, Panama, Poland, Portugal, Romania, Russia, Saudi Arabia, Serbia, Singapore, Slovak Republic, Slovenia, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, United Arab Emirates, Ukraine, United Kingdom, United States, Uzbekistan, Vietnam and Zambia.
Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standards (CRS)
Both FATCA and the CRS are exchange of Information Conventions/Agreements/Standards which achieve the same objective as TIEA’s with the exception that the sharing of information under FACTA and CRS are automatic.
The USA FATCA Intergovernmental Agreement is an agreement between the governments to exchange information automatically under the provisions of the double taxation agreement between countries.
The Standard for Automatic Exchange of Financial Account Information in Tax Matters (also referred to as the Common Reporting Standard or CRS) is the Global Model for automatic exchange of information under the Multilateral Competent Authority Convention.
The CRS is a standardised automatic exchange model, which builds on the FATCA IGA to maximise efficiency and minimise costs, except that the ambit is now extended to all foreign held accounts and not only those of US citizens.
Read for more information on FATCA and the CRS.