Exchange of information under tax treaties 84. Exchange of information under tax treaties is governed generally by provisions based on Article 26 of the OECD Model Convention on Income and on Capital. Article 26 requires Contracting States to “exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes covered by the Convention insofar as the taxation thereunder is not contrary to the Convention.”19 To protect the information that is exchanged, Article 26 establishes stringent confidentiality requirements and imposes strict limitations on the use of the information. The information received pursuant to Article 26 must be “treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by the Convention. They may disclose the information in public court proceedings or in judicial decisions.” 85. Further limitations on disclosure of information may be imposed by the requested State pursuant to Article 26, par. 2. Under Article 26, par. 2, a country is not required to: take administrative measures that go beyond its own laws and administrative practices or those of the requesting country; give information that is unobtainable under its laws or normal administrative practices or those of the requesting party; provide information that would disclose a “trade, business, industrial, commercial or professional secret or trade process or information the disclosure of which would be contrary to public policy”. 86. The vast majority of Member countries can obtain information from banks for the purpose of exchange of information under tax treaties. 19. Note that Switzerland has reserved the right to limit the scope of the Article to information necessary for carrying out the provisions of the Convention, and Mexico and the United States have reserved the right to extend the application of this Article to all taxes imposed by a Contracting State, not just taxes covered by the Convention pursuant to Article 2. 39 Luxembourg’s tax authorities do not have the authority to obtain bank information. Of those countries that can obtain bank information for purposes of exchanging information with treaty partners, most can obtain the information in the same way that information is obtained for domestic tax purposes. Some countries -- Greece, Japan, and the United Kingdom -- must have a domestic tax interest in the information sought from the bank in order to be able to request any information from the bank. The United Kingdom, however, does not require a domestic tax interest for purposes of exchanging information with EU countries in accordance with the EU Directive on Mutual Assistance. Ireland requires a domestic tax interest to obtain an order for detailed bank account information but does not require a domestic tax interest to obtain basic bank account information (i.e., account number, name and address of account holder, country of residence of account holder, and signature of account holder). Japan has not rejected any requests for information from any treaty partner on the basis of a lack of a domestic tax interest. 87. Most Member countries do not require exchange of information to relate to a resident of a Contracting State under a tax treaty. However, Hungary, Italy and Poland have such a requirement. 88. Several Member countries (Germany, Hungary, Korea, Luxembourg, Netherlands, Portugal, Sweden, United Kingdom, United States) must notify the taxpayer of an exchange of bank information under certain circumstances. In the United Kingdom, the taxpayer would not be notified where the information is provided routinely by the bank to the tax authority. Some countries lift the notification requirement in cases of tax fraud (Germany, Netherlands, Portugal, Sweden). Hungary prohibits the bank from notifying its client where the request has been made by an investigating authority, the Public Prosecution Office, or the National Security Service if the bank account or transactions concern drug trafficking, terrorism, illegal trade in arms, money laundering, or organised crime. Luxembourg must notify the bank if it intends to give information to a treaty partner. The United States does not have a general obligation to notify the taxpayer of an exchange of information. However, if the tax authorities must issue an administrative summons to obtain the bank account information for the treaty partner, they are obligated to notify the accountholder on the issuance of the summons. The obligation to notify the accountholder is lifted if a federal court determines that there is reasonable cause to believe that the notification may lead to attempts to conceal, destroy, or alter records relevant to the examination, to prevent the communication of information from other persons through intimidation, bribery, or collusion, or to flee to avoid prosecution, testifying, or production of records. In general, a taxpayer has the right to appeal the exchange of information in countries that require notification except in Sweden. The taxpayer has no appeal right 40 concerning a request for bank information in most Member countries. Further, the bank has no right of appeal under domestic law if the bank does not want to comply with a request for information in most Member countries. 89. All Member countries except Luxembourg and Switzerland can obtain bank information for the purpose of exchange of information under tax treaties pursuant to the limitations under Article 26-2 of the OECD Model Tax Convention. Bank information generally is not considered a trade, business, industrial, commercial or professional secret under Article 26-2(c) of the OECD Model Tax Convention (except in Portugal, Switzerland). Provision of bank information to a treaty partner is not limited to a particular stage in a tax case in most countries, nor is it limited to a particular type of case. However, Austria limits its assistance to certain types of penal proceedings. Belgium may lift bank secrecy and exchange information only in cases where there exists a presumption of the existence or preparation of tax fraud. The United Kingdom provides assistance only in the largest and most important cases. 90. All Member countries have means available to enforce requests for bank information if a bank fails to comply with such a request. The most common means available are the ability to impose fines and taking judicial action to compel the bank to comply which in turn may result in the imposition of contempt sanctions or imprisonment. 91. Most Member countries can provide information in a form that would be usable in a treaty partner’s courts. The ability to do so depends in large part on the form required by the treaty partner. 92. A number of countries (Australia, Canada, Denmark, Finland, France, Japan, Korea, New Zealand, Norway, Sweden, United Kingdom) automatically exchange bank information with their treaty partners. In some cases, the automatic exchange of information is limited to certain treaty partners based on an agreement (Denmark, France, Korea, Sweden). The automatic exchange of bank information also may depend on reciprocity (Australia, Canada, Denmark, France, Norway, Sweden). 93. Most countries can provide bank information to treaty partners on request. Austria, Belgium, Portugal, and Switzerland can do so in very limited circumstances but Greece and Luxembourg cannot. Some countries restrict their exchange of bank information to countries that can provide the same pieces of information (Denmark, France, Hungary, Ireland, Italy, the Netherlands, Spain). Some will provide such information to treaty partners cooperating under “full reciprocity” (Australia, Austria, France, Italy, Korea, Mexico, Poland, Turkey, United Kingdom (unless there is no domestic interest, 41 in the case of non-EU countries). Overall reciprocity is a factor used by the United States. Finland, Germany, New Zealand, and Norway do not limit their co-operation in principle, but will take into account the principle of reciprocity on a case by case basis. Iceland will respond to all treaty requests. 94. The countries that can provide treaty partners with bank information in general require basic information (accountholder’s name, name of bank) from the treaty partner in order to be able to satisfy the request. Obviously, the more information that is provided about the identity of the accountholder and the bank, the more likely it is that the information can be located and provided to the treaty partner. 95. Most Member countries can provide a treaty partner, pursuant to a specific request, with the amount of interest earned by a taxpayer in the prior year, interest earned over several prior years, the balance of deposits in previous years, and underlying documents held by the bank. Other instruments or mechanisms for exchanging bank information for tax purposes 96. Member countries have means other than bilateral tax treaties to exchange information for tax purposes. For example, Member States of the European Union have adopted Council Directives 77/799/EEC, 79/1070/EEC and 92/12/EEC (Article 30) which enable them to exchange information within the European Union on direct and indirect tax matters. The joint OECD/Council of Europe Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which has been ratified by 8 countries (Denmark, Finland, Iceland, the Netherlands, Norway, Poland, Sweden, United States) also permits countries to exchange information on direct and indirect tax matters. The Nordic Convention on Mutual Administrative Assistance in Tax Matters allows the Nordic countries to exchange bank and other information for all kinds of taxes except import duties. A number of OECD Member countries have entered into mutual legal assistance treaties among themselves and/or with non-member countries, which for the most part enable the treaty partners to exchange information regarding tax crimes. Many Members also are parties to the Hague Evidence Convention, which provides for the exchange of information regarding civil or administrative tax matters. Many Members also have ratified the European Convention on Mutual Assistance in Criminal Matters of 20 April 1959, which extends assistance in tax matters through an Additional Protocol. The Additional Protocol has been ratified by Austria, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Luxembourg (but not yet in force), Netherlands, Norway, 42 Poland, Portugal, Spain, Sweden, Turkey, and the United Kingdom (signed by Belgium, Switzerland but not yet in effect). The United States, Mexico and Canada enter into various tax information exchange agreements that provide for the exchange of bank and other information for the purpose of administering the taxes of the parties. 97. The EC Council Directive 91/308/EEC on prevention of the use of the financial system for the purpose of money laundering also provides Member States with the possibility of obtaining bank information for tax purposes. Article 6 of the Directive requires Member States to ensure that credit and financial institutions and their directors and employees co-operate fully with the authorities in charge of combating money laundering. Although Article 6 provides that the information received pursuant to Article 6 should only be used to combat money laundering, it also expressly permits Member States to authorise the use of the information for other purposes. Thus, Member States may provide in their domestic law that such information may also be used for tax purposes. No country reported having changed its law pursuant to this provision. However, a number of OECD Member countries, inside and outside the European Union indicated that they do have some access to banking and other information gathered by other domestic authorities for purposes of combating money laundering. 98. The domestic laws of some countries provide another means for exchanging information. For example, Ireland’s Criminal Justice Act of 1994 permits information to be obtained for the purpose of investigating or prosecuting criminal offences, including tax offences, in other countries. The Swiss Federal Law on International Mutual Assistance in criminal matters authorises the provision of mutual judicial assistance in cases of fiscal fraud. The assistance is provided by Swiss judicial authorities after consultation with the federal tax administration. Similarly, under the Criminal Justice (International Co-operation) Act 1990, the United Kingdom has certain powers to respond to requests from judicial authorities of other countries in cases involving investigation into or proceedings against alleged criminal offences, including tax offences. The Act enables requesting countries to obtain evidence from third parties such as banks in connection with fiscal criminal offences. In the United States, a foreign country may seek judicial assistance to obtain bank information pursuant to section 28 U.S.C. 1782. Information reporting by taxpayers 99. More than half of the Member countries (Belgium, Canada, Denmark, Finland, France, Iceland, Ireland, Italy, Luxembourg, Mexico, Norway, Spain, 43 Sweden, Switzerland, Turkey, United Kingdom, United States) require taxpayers to inform the tax authorities whether they have foreign bank accounts, usually on the annual income tax return. The duty to report the existence of the foreign account may depend on the amount deposited in the account or whether interest is credited to the account. Denmark and Sweden also require taxpayers to file both a power of attorney with the tax authorities to allow them to examine the foreign bank account and a declaration from the foreign bank that it has agreed to submit an annual report to the tax authorities with information on the interest paid in the prior year and the balance of the account at the end of the year. 100. Most countries do not require taxpayers to report the opening of foreign bank accounts to the Central Bank or other authority (other than the tax administration). Such reporting is required in the Czech Republic, Hungary, Norway, Poland, and Spain. 101. All countries except Poland tax residents on interest income earned on foreign bank accounts. Poland taxes legal persons on such income but exempts interest earned by individuals on foreign and domestic accounts from such taxation.