A. Overview 1. Bank secrecy is widely recognised as playing a legitimate role in protecting the confidentiality of the financial affairs of individuals and legal entities. It derives from the concept that the relationship between a banker and his customer obliges the bank to treat all the customer’s affairs as confidential. All countries provide, to a greater or lesser extent, the authority and obligation for banks to refuse to disclose customer information to ordinary third parties. Access to such information by ordinary third parties would jeopardise the right to privacy and potentially endanger the commercial and financial well-being of the accountholder. 2. Nevertheless, bank secrecy toward governmental authorities, including tax authorities, may enable taxpayers to hide illegal activities and to escape tax. The effective administration and enforcement of many laws and regulations, including those on taxation, require access to, and analysis of, records of financial transactions. Conditions where financial records and transactions can be concealed from, or access denied to, law enforcement officials may present numerous and obvious opportunities to evade and avoid laws covering matters such as taxation. 3. Governments of all OECD Member countries recognise the importance of permitting governmental authorities access to bank information for certain law enforcement purposes (e.g., money laundering). Governments of all OECD Member countries also provide their tax authorities, directly or indirectly, with the possibility of obtaining access to bank information for at least some tax administration purposes.1 The recent Survey of Country Practices 1. The verification, enforcement and collection of taxpayers’ tax liabilities, as well as the investigation and prosecution of tax crimes are the activities undertaken by 8 on Access to Bank Information for Tax Purposes [Appendix I] which is summarised in Chapter IV, indicates that the scope and means of such access varies from country to country. The majority of Member countries allow tax authorities to obtain bank account information for most tax administration purposes; a small minority limit access to bank information to certain criminal tax matters. 4. Access to bank information can greatly improve the ability of tax authorities to effectively administer the tax laws enacted by their parliaments. In general, OECD Member countries tax income on the basis of the residence principle of taxation, in accordance with the OECD Model Convention’s allocation of taxing rights between the residence country and source country. Proper application of the residence principle of taxation requires tax authorities in certain cases to have access to information held by domestic banks, and foreign banks. Information that tax authorities may need to obtain from banks for specific cases includes information about deposits and withdrawals (e.g., to verify whether there is unreported legally or illegally earned income, to determine if a taxpayer has claimed false deductions, to determine whether there are back to back loan transactions or sham transactions, to obtain answers to questions about the origin of funds, to identify bribes and suspicious payments to foreign public officials), signature cards (e.g., to verify the control of a legal entity, to establish links between seemingly unrelated taxpayers), and interest income. Bank information is important to tax authorities with respect to both the verification of taxpayers’ tax liabilities and for the collection of tax liabilities. 5. Access to bank account information can take several forms. The vast majority of OECD Member countries are able to obtain information about the account of a specific taxpayer by requesting the information from the bank directly or indirectly through the use of a judicial or administrative process. The tax administrations of some Member countries have the authority, under certain circumstances, to enter the bank premises and obtain directly the necessary bank account information. The tax administrations of other Member countries have direct access to bank information through centralised databases. Other tax administrations may have less direct access and may need to use a formal process (e.g., administrative summons, requirement, court order) to obtain such information. Many tax administrations also receive certain types of information from banks (e.g., amount of interest payments) on an automatic tax authorities (directly or indirectly through judicial or other authorities) which are referred to generally in this Report as “tax administration purposes" or "tax purposes". 9 basis, which greatly facilitates domestic tax administration and potentially expands the types of information that may be exchanged with treaty partners on an automatic basis. Such automatic reporting also may benefit taxpayers. In some countries, such reporting allows tax authorities to prepare tax returns for their residents, thereby reducing compliance burdens. The focus of this Report is on access to bank information pursuant to a specific request made by a tax authority, directly or through a judicial or other authority, for information that may be relevant to a specific case. The topic of automatic exchange of bank information will be considered in the context of the study of the use of withholding taxes and/or exchange of information to enhance the taxation of cross-border interest flows. 6. Allowing tax authorities access to bank information through direct or indirect means does not jeopardise the confidentiality of the information. Tax authorities in all OECD countries are subject to very stringent controls on how they use all taxpayer information, including bank information. In addition, all OECD governments have strict rules to protect the confidentiality of tax information, including severe sanctions for breaches of confidentiality. Article 26 of the OECD Model Tax Convention, which forms the basis of most bilateral tax treaty provisions relating to exchange of information, also contains provisions to protect the confidentiality of information exchanged by tax authorities pursuant to tax treaties. 7. Denying tax authorities access to banking information can have adverse consequences domestically and internationally. Domestically, it can impede the tax authorities’ ability to determine and collect the right amount of tax. It also can foster tax inequities among taxpayers. Some taxpayers will use technological and financial resources to escape taxes legally due by using financial institutions in jurisdictions that protect banking information from disclosure to tax authorities. This distorts the distribution of the tax burden and may lead to disillusionment with the fairness of the tax system. Lack of access to bank information for tax purposes may result in some types of income escaping all taxation, thus producing inequities among different categories of income. Mobile capital may obtain unjustified advantages as compared to income derived from labour or from immovable property. Further, lack of access to bank information may increase the costs of tax administration and compliance costs for taxpayers. Internationally, lack of adequate access to bank information for tax purposes may obstruct efficient international tax cooperation by curtailing a tax authorities’ ability to assist its treaty partners which in turn may lead to unilateral action by the country seeking the bank information. It also may distort capital and financial flows by directing them to countries that restrict tax authority access to bank information. 10 8. These consequences led the OECD Committee on Fiscal Affairs (hereinafter referred to as “the Committee”) to consider the issue of bank secrecy in the early 1980’s. In 1985, the Committee produced the report, Taxation and The Abuse of Bank Secrecy (“the 1985 Report”) which appears in International Tax Avoidance and Evasion: Four Related Studies (OECD, 1987). To address the adverse domestic and international consequences noted above, the 1985 Report suggested “increasing where necessary the information available domestically through relaxation of bank secrecy towards tax authorities” by urging tax authorities of countries with limited access to bank information to encourage their governments to relax bank secrecy rules as they apply to tax authorities, using as support for such liberalisation the growing relaxation of these rules in other OECD countries and the recommendations of international organisations such as the Council of Europe. 9. The 1985 Report also suggested that tax authorities make “further use through exchange of information procedures of data obtainable from banks”. The 1985 Report offered three ways for tax authorities to achieve this result: a) adopt the view that the exchange of bank information does not pose special problems; b) exchange information to the maximum extent permitted by Article 26 of the OECD Model Convention; and c) provide information to treaty partners on a unilateral basis in appropriate cases. Not all Member countries were able to agree with the 1985 Report. 2 Nevertheless, some progress was made in response to this Report, although further improvements are necessary. (See pars. 104-108). 10. The economic, regulatory and technological environment in which tax administrations must now operate is vastly different from the environment extant at the time the 1985 Report was approved. Globalisation, fuelled by the technology revolution of the last decade, has fostered the explosive growth of cross-border transactions. Technological advances, particularly in the area of electronic commerce and banking, have made international banking readily accessible to a wide range of taxpayers, not just large multinationals and wealthy individuals. The elimination of exchange controls by OECD countries and many non-member countries also has facilitated the rapid expansion of cross-border financial transactions. This new era of “banking without borders” has promoted cross-border transactions, presented new opportunities for economic growth and increased living standards world wide, but it also has raised new challenges for tax administrations around the globe.
    Blogger Comment
    Facebook Comment

0 comments:

Post a Comment

 
Copyright © 2013. Prank Ya Friends - All Rights Reserved
Template Created by ThemeXpose