An intelligent mobile thief!!! (Caught on camera)

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.

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The previous chapters described recent developments that have increased the need for access to bank information for tax purposes and the adverse consequences that may be caused by the lack of such access. This chapter summarises the current country practices with respect to access to bank information for tax purposes. To the extent that this Chapter summarises these practices, it is based on the results of the Survey of Country Practices on Access to Bank Information for Tax Purposes [Appendix I]. Legal basis for bank secrecy 68. As reflected in the 1985 Report, all OECD Member countries protect in some way the confidentiality of information held by financial institutions. The vast majority of OECD Member countries protect this confidentiality through explicit legislative provisions. Other Member countries do so through tradition or administrative practice or through general constitutional or other rules that protect personal freedoms or privacy. Certain countries rely on the common law principle that the confidentiality of bank information stems from the contractual relationship between the bank and customer. The rules of the civil and criminal codes applicable to this contractual relationship may also protect the confidentiality of customer information held by banks. Exceptions to bank secrecy Non-tax purposes 69. In general, all Member countries allow access to bank information for various non-tax civil and criminal proceedings, both for domestic and 34 international purposes.17 For domestic and international criminal proceedings, all countries oblige banks in at least some instances to provide bank information. In the context of non-tax civil proceedings, all but 3 countries (Germany, Greece, Luxembourg) reported requiring banks to give information for domestic proceedings in at least some instances and all but 4 countries (Germany, Greece, Ireland, Luxembourg) oblige banks to give information for international civil proceedings at least in some instances. In the context of debt collection and bankruptcy, all but 2 countries (Germany, Greece) obligate banks to provide information for domestic debt collection and bankruptcy in some instances, and all but 3 countries (Austria, Germany, Greece) must provide such information for international proceedings in some instances. 70. In addition, all Member countries except Korea (which is waiting for the legislative ratification of the anti-money laundering bill proposed by the Government) and the Netherlands (which does not have legal bank secrecy) have taken measures to relax bank secrecy to combat money laundering. More than half of the OECD Member countries that have taken such measures have some access to this information for tax administration purposes. Tax purposes 71. As discussed more fully below, most countries permit tax authorities to obtain access to bank information through an exception to the general rule or law that establishes the confidentiality of bank information. In a small number of countries, this access is limited to situations involving criminal proceedings or tax fraud. In Luxembourg, tax authorities do not have direct access to bank information for tax purposes and bank information may only be obtained by judicial authorities in cases of suspected tax fraud. Bank account information requirements 72. Access to bank information is valuable to tax authorities only if the bank possesses useful and reliable information regarding the identity of its customer and the nature and amounts of financial transactions. 17. The questionnaire asked countries to respond either “yes,” “no” or “in some instances”. It was not apparent from the answers what distinctions each country made between a:”yes” and “in some instances.” Thus, for purposes of this summary, the affirmative responses are grouped together and contrasted with the negative responses. 35 73. The use of anonymous and numbered accounts may pose a barrier to effective access to bank information for tax administration purposes if the identity of the account holder is not known to the bank.18 However, the vast majority of OECD Member countries prohibit the use of anonymous and numbered accounts. Anonymous accounts may be opened only in Austria and the Czech Republic and only in certain circumstances. Austria intends to reexamine its legislation concerning anonymous accounts in 2000. At present, anonymous accounts may be opened in Austria but only by its residents and only as savings accounts (bank deposit books). However, banks in Austria generally will know the identity of accountholders of large savings accounts. Austria’s foreign exchange regulations require the bank to verify the client’s residence status although the law does not specify the means of verification. Further, withdrawals from these accounts are only possible in cash; transfers to other accounts are not permitted. The Czech Republic limits anonymous deposits to an amount equivalent to US$3700. These deposits cannot be used for business transactions and the trend for the future is to prohibit the opening of new accounts of this type. 74. Numbered accounts may be opened only in Austria, Luxembourg and Switzerland. The identity of the numbered account holder is known by the bank in each of these countries. In Austria, the identity of both resident and nonresident accountholders is known except in the case of anonymous saving deposit books, which may be opened only by residents. 75. With regard to other types of accounts, all Member countries require banks to obtain information to identify the account holder. The level of information and documentation required to open accounts other than anonymous and numbered accounts varies from country to country. In general, most countries require banks to verify the name and address of the client by some type of official documentation (e.g., passport, identity card, driver’s license). Most countries that use tax identification numbers (TINs) require the domestic TIN to be provided to open an account but only ten countries (Denmark, Finland, Iceland, Korea, Mexico, Norway, Poland, Portugal, Spain, Sweden) require the customer to provide documentary evidence of the TIN. In April 1998, Turkey joined the group of countries that has the legal power to prohibit by law the opening of a bank account without a TIN. The Ministry of Finance of Turkey intends to use its legal power to require mandatory use of TINs for banking and other financial services in the near future. Australia and New Zealand do not require TINs to be provided but if they are not provided, 18. Similar difficulties arise with bearer bonds. 36 tax is withheld at the highest marginal rate. Poland requires each bank to establish its own identification and documentation requirements. 76. In general, a bank that does not comply with the information and documentation requirements for opening accounts is subject to penalties, which usually consist of fines or imprisonment of bank officials, or both. In Austria and Switzerland, it may even be possible to revoke the bank’s license. Means of removing funds from accounts 77. In general, there are no restrictions on the means of moving money out of accounts except in Austria. As noted above, Austria restricts withdrawals from anonymous savings accounts to cash withdrawals. It does not permit transfers from such accounts to other accounts. Several countries require reporting of certain types of transfers (e.g., Australia requires the reporting of telegraphic transfers) or transfers over a certain amount (e.g., Italy requires the registration of transactions over 20 million lira). Access to bank information for tax administration purposes 78. There are several ways in which tax authorities may obtain information from banks. One of the ways is through automatic reporting of certain types of information by banks to the tax administration. Currently, 19 Member countries require automatic reporting by banks. In general, countries require automatic reporting with respect to interest paid to taxpayers and on amounts of tax withheld on interest paid. In addition, some countries require the automatic reporting of the opening and closing of accounts, account balances at year end and interest on loans. 79. Some countries (France, Hungary, Korea, Norway, and Spain) have centralised data banks of certain bank account information. France requires financial institutions managing stocks, bonds or cash to report on a monthly basis the opening, modifications, and closing of accounts of all kinds. This information is stored in a computerised database which is used by the French tax administration for research, control and collection purposes. Korea has a separately designated database within the tax administration’s overall database which contains the information reported automatically by banks with respect to their interest payments (i.e., the amount of interest paid, tax withheld on the interest, bank account to which interest accrued, identity of accountholder together with his/her resident registration number or business registration number). This database is utilised mainly for the verification of income tax and 37 inheritance tax returns. The database in Spain is similar in that it identifies for each taxpayer the bank accounts of which he is the accountholder if there has been withholding at source, income from mobile capital if there has been withholding at source, and information on checks on current accounts received in cash over 500 000 pesetas. 80. One of the most important ways for tax authorities to obtain information from banks is through a specific request to the bank for particular information related to the tax case of a specific taxpayer. All Member countries permit their tax authorities, judicial authorities or public prosecutors to obtain information from banks in cases involving certain criminal tax matters. A vast majority also can obtain information from banks for purposes of verifying the tax liability of a particular taxpayer. 81. Several countries (Australia, Czech Republic, Denmark, Finland, France, Italy, Norway, New Zealand, Spain, and Turkey) can obtain bank information for tax administration purposes without limitation. Other countries may need to use a special procedure to obtain bank information such as a requirement (Canada), an administrative summons (United States) or consent of an independent commissioner (United Kingdom). Others have limitations as to the circumstances under which they can obtain information. For example, Portugal may obtain bank information only if a criminal proceeding is pending or if an enforcement order is issued by a court at the request of the tax administration and also in cases where fiscal benefits are provided through bank accounts (e.g., special treatment of retirement savings). 82. In certain circumstances, the tax authorities of some countries have the power to seize documents from banks or to enter the bank premises to examine the bank records directly. For example, Austria has the power to seize documents if the bank refuses to comply with a valid request for information. Italian tax authorities have direct access to the bank premises for purposes of examining bank records when the bank has not provided the required information or if there are doubts as to the completeness or accuracy of the information provided. 83. Most Member countries can obtain information from a bank about a third person who is not suspected of tax fraud but who has had economic transactions with a specified person suspected of tax fraud. In addition, most Member countries can obtain bank information that belongs to a family member of the person about whom the request is made. More than half of the Member countries can obtain information about the account holder’s economic situation, business activities, etc., which the bank has obtained for creditability purposes. All Member countries require banks to reveal whether a named person keeps an 38 account with it except: Austria, Luxembourg, and Switzerland which require the disclosure in criminal cases; Belgium, which will require the disclosure in exceptional cases, especially where there exists a presumption of the existence or preparation of tax fraud, and Portugal (except in criminal cases where a judge can decree the lifting of bank secrecy).

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The previous chapters described recent developments that have increased the need for access to bank information for tax purposes and the adverse consequences that may be caused by the lack of such access. This chapter summarises the current country practices with respect to access to bank information for tax purposes. To the extent that this Chapter summarises these practices, it is based on the results of the Survey of Country Practices on Access to Bank Information for Tax Purposes [Appendix I]. Legal basis for bank secrecy 68. As reflected in the 1985 Report, all OECD Member countries protect in some way the confidentiality of information held by financial institutions. The vast majority of OECD Member countries protect this confidentiality through explicit legislative provisions. Other Member countries do so through tradition or administrative practice or through general constitutional or other rules that protect personal freedoms or privacy. Certain countries rely on the common law principle that the confidentiality of bank information stems from the contractual relationship between the bank and customer. The rules of the civil and criminal codes applicable to this contractual relationship may also protect the confidentiality of customer information held by banks. Exceptions to bank secrecy Non-tax purposes 69. In general, all Member countries allow access to bank information for various non-tax civil and criminal proceedings, both for domestic and 34 international purposes.17 For domestic and international criminal proceedings, all countries oblige banks in at least some instances to provide bank information. In the context of non-tax civil proceedings, all but 3 countries (Germany, Greece, Luxembourg) reported requiring banks to give information for domestic proceedings in at least some instances and all but 4 countries (Germany, Greece, Ireland, Luxembourg) oblige banks to give information for international civil proceedings at least in some instances. In the context of debt collection and bankruptcy, all but 2 countries (Germany, Greece) obligate banks to provide information for domestic debt collection and bankruptcy in some instances, and all but 3 countries (Austria, Germany, Greece) must provide such information for international proceedings in some instances. 70. In addition, all Member countries except Korea (which is waiting for the legislative ratification of the anti-money laundering bill proposed by the Government) and the Netherlands (which does not have legal bank secrecy) have taken measures to relax bank secrecy to combat money laundering. More than half of the OECD Member countries that have taken such measures have some access to this information for tax administration purposes. Tax purposes 71. As discussed more fully below, most countries permit tax authorities to obtain access to bank information through an exception to the general rule or law that establishes the confidentiality of bank information. In a small number of countries, this access is limited to situations involving criminal proceedings or tax fraud. In Luxembourg, tax authorities do not have direct access to bank information for tax purposes and bank information may only be obtained by judicial authorities in cases of suspected tax fraud. Bank account information requirements 72. Access to bank information is valuable to tax authorities only if the bank possesses useful and reliable information regarding the identity of its customer and the nature and amounts of financial transactions. 17. The questionnaire asked countries to respond either “yes,” “no” or “in some instances”. It was not apparent from the answers what distinctions each country made between a:”yes” and “in some instances.” Thus, for purposes of this summary, the affirmative responses are grouped together and contrasted with the negative responses. 35 73. The use of anonymous and numbered accounts may pose a barrier to effective access to bank information for tax administration purposes if the identity of the account holder is not known to the bank.18 However, the vast majority of OECD Member countries prohibit the use of anonymous and numbered accounts. Anonymous accounts may be opened only in Austria and the Czech Republic and only in certain circumstances. Austria intends to reexamine its legislation concerning anonymous accounts in 2000. At present, anonymous accounts may be opened in Austria but only by its residents and only as savings accounts (bank deposit books). However, banks in Austria generally will know the identity of accountholders of large savings accounts. Austria’s foreign exchange regulations require the bank to verify the client’s residence status although the law does not specify the means of verification. Further, withdrawals from these accounts are only possible in cash; transfers to other accounts are not permitted. The Czech Republic limits anonymous deposits to an amount equivalent to US$3700. These deposits cannot be used for business transactions and the trend for the future is to prohibit the opening of new accounts of this type. 74. Numbered accounts may be opened only in Austria, Luxembourg and Switzerland. The identity of the numbered account holder is known by the bank in each of these countries. In Austria, the identity of both resident and nonresident accountholders is known except in the case of anonymous saving deposit books, which may be opened only by residents. 75. With regard to other types of accounts, all Member countries require banks to obtain information to identify the account holder. The level of information and documentation required to open accounts other than anonymous and numbered accounts varies from country to country. In general, most countries require banks to verify the name and address of the client by some type of official documentation (e.g., passport, identity card, driver’s license). Most countries that use tax identification numbers (TINs) require the domestic TIN to be provided to open an account but only ten countries (Denmark, Finland, Iceland, Korea, Mexico, Norway, Poland, Portugal, Spain, Sweden) require the customer to provide documentary evidence of the TIN. In April 1998, Turkey joined the group of countries that has the legal power to prohibit by law the opening of a bank account without a TIN. The Ministry of Finance of Turkey intends to use its legal power to require mandatory use of TINs for banking and other financial services in the near future. Australia and New Zealand do not require TINs to be provided but if they are not provided, 18. Similar difficulties arise with bearer bonds. 36 tax is withheld at the highest marginal rate. Poland requires each bank to establish its own identification and documentation requirements. 76. In general, a bank that does not comply with the information and documentation requirements for opening accounts is subject to penalties, which usually consist of fines or imprisonment of bank officials, or both. In Austria and Switzerland, it may even be possible to revoke the bank’s license. Means of removing funds from accounts 77. In general, there are no restrictions on the means of moving money out of accounts except in Austria. As noted above, Austria restricts withdrawals from anonymous savings accounts to cash withdrawals. It does not permit transfers from such accounts to other accounts. Several countries require reporting of certain types of transfers (e.g., Australia requires the reporting of telegraphic transfers) or transfers over a certain amount (e.g., Italy requires the registration of transactions over 20 million lira). Access to bank information for tax administration purposes 78. There are several ways in which tax authorities may obtain information from banks. One of the ways is through automatic reporting of certain types of information by banks to the tax administration. Currently, 19 Member countries require automatic reporting by banks. In general, countries require automatic reporting with respect to interest paid to taxpayers and on amounts of tax withheld on interest paid. In addition, some countries require the automatic reporting of the opening and closing of accounts, account balances at year end and interest on loans. 79. Some countries (France, Hungary, Korea, Norway, and Spain) have centralised data banks of certain bank account information. France requires financial institutions managing stocks, bonds or cash to report on a monthly basis the opening, modifications, and closing of accounts of all kinds. This information is stored in a computerised database which is used by the French tax administration for research, control and collection purposes. Korea has a separately designated database within the tax administration’s overall database which contains the information reported automatically by banks with respect to their interest payments (i.e., the amount of interest paid, tax withheld on the interest, bank account to which interest accrued, identity of accountholder together with his/her resident registration number or business registration number). This database is utilised mainly for the verification of income tax and 37 inheritance tax returns. The database in Spain is similar in that it identifies for each taxpayer the bank accounts of which he is the accountholder if there has been withholding at source, income from mobile capital if there has been withholding at source, and information on checks on current accounts received in cash over 500 000 pesetas. 80. One of the most important ways for tax authorities to obtain information from banks is through a specific request to the bank for particular information related to the tax case of a specific taxpayer. All Member countries permit their tax authorities, judicial authorities or public prosecutors to obtain information from banks in cases involving certain criminal tax matters. A vast majority also can obtain information from banks for purposes of verifying the tax liability of a particular taxpayer. 81. Several countries (Australia, Czech Republic, Denmark, Finland, France, Italy, Norway, New Zealand, Spain, and Turkey) can obtain bank information for tax administration purposes without limitation. Other countries may need to use a special procedure to obtain bank information such as a requirement (Canada), an administrative summons (United States) or consent of an independent commissioner (United Kingdom). Others have limitations as to the circumstances under which they can obtain information. For example, Portugal may obtain bank information only if a criminal proceeding is pending or if an enforcement order is issued by a court at the request of the tax administration and also in cases where fiscal benefits are provided through bank accounts (e.g., special treatment of retirement savings). 82. In certain circumstances, the tax authorities of some countries have the power to seize documents from banks or to enter the bank premises to examine the bank records directly. For example, Austria has the power to seize documents if the bank refuses to comply with a valid request for information. Italian tax authorities have direct access to the bank premises for purposes of examining bank records when the bank has not provided the required information or if there are doubts as to the completeness or accuracy of the information provided. 83. Most Member countries can obtain information from a bank about a third person who is not suspected of tax fraud but who has had economic transactions with a specified person suspected of tax fraud. In addition, most Member countries can obtain bank information that belongs to a family member of the person about whom the request is made. More than half of the Member countries can obtain information about the account holder’s economic situation, business activities, etc., which the bank has obtained for creditability purposes. All Member countries require banks to reveal whether a named person keeps an 38 account with it except: Austria, Luxembourg, and Switzerland which require the disclosure in criminal cases; Belgium, which will require the disclosure in exceptional cases, especially where there exists a presumption of the existence or preparation of tax fraud, and Portugal (except in criminal cases where a judge can decree the lifting of bank secrecy).

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The previous chapters described recent developments that have increased the need for access to bank information for tax purposes and the adverse consequences that may be caused by the lack of such access. This chapter summarises the current country practices with respect to access to bank information for tax purposes. To the extent that this Chapter summarises these practices, it is based on the results of the Survey of Country Practices on Access to Bank Information for Tax Purposes [Appendix I]. Legal basis for bank secrecy 68. As reflected in the 1985 Report, all OECD Member countries protect in some way the confidentiality of information held by financial institutions. The vast majority of OECD Member countries protect this confidentiality through explicit legislative provisions. Other Member countries do so through tradition or administrative practice or through general constitutional or other rules that protect personal freedoms or privacy. Certain countries rely on the common law principle that the confidentiality of bank information stems from the contractual relationship between the bank and customer. The rules of the civil and criminal codes applicable to this contractual relationship may also protect the confidentiality of customer information held by banks. Exceptions to bank secrecy Non-tax purposes 69. In general, all Member countries allow access to bank information for various non-tax civil and criminal proceedings, both for domestic and 34 international purposes.17 For domestic and international criminal proceedings, all countries oblige banks in at least some instances to provide bank information. In the context of non-tax civil proceedings, all but 3 countries (Germany, Greece, Luxembourg) reported requiring banks to give information for domestic proceedings in at least some instances and all but 4 countries (Germany, Greece, Ireland, Luxembourg) oblige banks to give information for international civil proceedings at least in some instances. In the context of debt collection and bankruptcy, all but 2 countries (Germany, Greece) obligate banks to provide information for domestic debt collection and bankruptcy in some instances, and all but 3 countries (Austria, Germany, Greece) must provide such information for international proceedings in some instances. 70. In addition, all Member countries except Korea (which is waiting for the legislative ratification of the anti-money laundering bill proposed by the Government) and the Netherlands (which does not have legal bank secrecy) have taken measures to relax bank secrecy to combat money laundering. More than half of the OECD Member countries that have taken such measures have some access to this information for tax administration purposes. Tax purposes 71. As discussed more fully below, most countries permit tax authorities to obtain access to bank information through an exception to the general rule or law that establishes the confidentiality of bank information. In a small number of countries, this access is limited to situations involving criminal proceedings or tax fraud. In Luxembourg, tax authorities do not have direct access to bank information for tax purposes and bank information may only be obtained by judicial authorities in cases of suspected tax fraud. Bank account information requirements 72. Access to bank information is valuable to tax authorities only if the bank possesses useful and reliable information regarding the identity of its customer and the nature and amounts of financial transactions. 17. The questionnaire asked countries to respond either “yes,” “no” or “in some instances”. It was not apparent from the answers what distinctions each country made between a:”yes” and “in some instances.” Thus, for purposes of this summary, the affirmative responses are grouped together and contrasted with the negative responses. 35 73. The use of anonymous and numbered accounts may pose a barrier to effective access to bank information for tax administration purposes if the identity of the account holder is not known to the bank.18 However, the vast majority of OECD Member countries prohibit the use of anonymous and numbered accounts. Anonymous accounts may be opened only in Austria and the Czech Republic and only in certain circumstances. Austria intends to reexamine its legislation concerning anonymous accounts in 2000. At present, anonymous accounts may be opened in Austria but only by its residents and only as savings accounts (bank deposit books). However, banks in Austria generally will know the identity of accountholders of large savings accounts. Austria’s foreign exchange regulations require the bank to verify the client’s residence status although the law does not specify the means of verification. Further, withdrawals from these accounts are only possible in cash; transfers to other accounts are not permitted. The Czech Republic limits anonymous deposits to an amount equivalent to US$3700. These deposits cannot be used for business transactions and the trend for the future is to prohibit the opening of new accounts of this type. 74. Numbered accounts may be opened only in Austria, Luxembourg and Switzerland. The identity of the numbered account holder is known by the bank in each of these countries. In Austria, the identity of both resident and nonresident accountholders is known except in the case of anonymous saving deposit books, which may be opened only by residents. 75. With regard to other types of accounts, all Member countries require banks to obtain information to identify the account holder. The level of information and documentation required to open accounts other than anonymous and numbered accounts varies from country to country. In general, most countries require banks to verify the name and address of the client by some type of official documentation (e.g., passport, identity card, driver’s license). Most countries that use tax identification numbers (TINs) require the domestic TIN to be provided to open an account but only ten countries (Denmark, Finland, Iceland, Korea, Mexico, Norway, Poland, Portugal, Spain, Sweden) require the customer to provide documentary evidence of the TIN. In April 1998, Turkey joined the group of countries that has the legal power to prohibit by law the opening of a bank account without a TIN. The Ministry of Finance of Turkey intends to use its legal power to require mandatory use of TINs for banking and other financial services in the near future. Australia and New Zealand do not require TINs to be provided but if they are not provided, 18. Similar difficulties arise with bearer bonds. 36 tax is withheld at the highest marginal rate. Poland requires each bank to establish its own identification and documentation requirements. 76. In general, a bank that does not comply with the information and documentation requirements for opening accounts is subject to penalties, which usually consist of fines or imprisonment of bank officials, or both. In Austria and Switzerland, it may even be possible to revoke the bank’s license. Means of removing funds from accounts 77. In general, there are no restrictions on the means of moving money out of accounts except in Austria. As noted above, Austria restricts withdrawals from anonymous savings accounts to cash withdrawals. It does not permit transfers from such accounts to other accounts. Several countries require reporting of certain types of transfers (e.g., Australia requires the reporting of telegraphic transfers) or transfers over a certain amount (e.g., Italy requires the registration of transactions over 20 million lira). Access to bank information for tax administration purposes 78. There are several ways in which tax authorities may obtain information from banks. One of the ways is through automatic reporting of certain types of information by banks to the tax administration. Currently, 19 Member countries require automatic reporting by banks. In general, countries require automatic reporting with respect to interest paid to taxpayers and on amounts of tax withheld on interest paid. In addition, some countries require the automatic reporting of the opening and closing of accounts, account balances at year end and interest on loans. 79. Some countries (France, Hungary, Korea, Norway, and Spain) have centralised data banks of certain bank account information. France requires financial institutions managing stocks, bonds or cash to report on a monthly basis the opening, modifications, and closing of accounts of all kinds. This information is stored in a computerised database which is used by the French tax administration for research, control and collection purposes. Korea has a separately designated database within the tax administration’s overall database which contains the information reported automatically by banks with respect to their interest payments (i.e., the amount of interest paid, tax withheld on the interest, bank account to which interest accrued, identity of accountholder together with his/her resident registration number or business registration number). This database is utilised mainly for the verification of income tax and 37 inheritance tax returns. The database in Spain is similar in that it identifies for each taxpayer the bank accounts of which he is the accountholder if there has been withholding at source, income from mobile capital if there has been withholding at source, and information on checks on current accounts received in cash over 500 000 pesetas. 80. One of the most important ways for tax authorities to obtain information from banks is through a specific request to the bank for particular information related to the tax case of a specific taxpayer. All Member countries permit their tax authorities, judicial authorities or public prosecutors to obtain information from banks in cases involving certain criminal tax matters. A vast majority also can obtain information from banks for purposes of verifying the tax liability of a particular taxpayer. 81. Several countries (Australia, Czech Republic, Denmark, Finland, France, Italy, Norway, New Zealand, Spain, and Turkey) can obtain bank information for tax administration purposes without limitation. Other countries may need to use a special procedure to obtain bank information such as a requirement (Canada), an administrative summons (United States) or consent of an independent commissioner (United Kingdom). Others have limitations as to the circumstances under which they can obtain information. For example, Portugal may obtain bank information only if a criminal proceeding is pending or if an enforcement order is issued by a court at the request of the tax administration and also in cases where fiscal benefits are provided through bank accounts (e.g., special treatment of retirement savings). 82. In certain circumstances, the tax authorities of some countries have the power to seize documents from banks or to enter the bank premises to examine the bank records directly. For example, Austria has the power to seize documents if the bank refuses to comply with a valid request for information. Italian tax authorities have direct access to the bank premises for purposes of examining bank records when the bank has not provided the required information or if there are doubts as to the completeness or accuracy of the information provided. 83. Most Member countries can obtain information from a bank about a third person who is not suspected of tax fraud but who has had economic transactions with a specified person suspected of tax fraud. In addition, most Member countries can obtain bank information that belongs to a family member of the person about whom the request is made. More than half of the Member countries can obtain information about the account holder’s economic situation, business activities, etc., which the bank has obtained for creditability purposes. All Member countries require banks to reveal whether a named person keeps an 38 account with it except: Austria, Luxembourg, and Switzerland which require the disclosure in criminal cases; Belgium, which will require the disclosure in exceptional cases, especially where there exists a presumption of the existence or preparation of tax fraud, and Portugal (except in criminal cases where a judge can decree the lifting of bank secrecy).

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Huge Scary Spider Prank - Amazing and Shock

The previous chapters described recent developments that have increased the need for access to bank information for tax purposes and the adverse consequences that may be caused by the lack of such access. This chapter summarises the current country practices with respect to access to bank information for tax purposes. To the extent that this Chapter summarises these practices, it is based on the results of the Survey of Country Practices on Access to Bank Information for Tax Purposes [Appendix I]. Legal basis for bank secrecy 68. As reflected in the 1985 Report, all OECD Member countries protect in some way the confidentiality of information held by financial institutions. The vast majority of OECD Member countries protect this confidentiality through explicit legislative provisions. Other Member countries do so through tradition or administrative practice or through general constitutional or other rules that protect personal freedoms or privacy. Certain countries rely on the common law principle that the confidentiality of bank information stems from the contractual relationship between the bank and customer. The rules of the civil and criminal codes applicable to this contractual relationship may also protect the confidentiality of customer information held by banks. Exceptions to bank secrecy Non-tax purposes 69. In general, all Member countries allow access to bank information for various non-tax civil and criminal proceedings, both for domestic and 34 international purposes.17 For domestic and international criminal proceedings, all countries oblige banks in at least some instances to provide bank information. In the context of non-tax civil proceedings, all but 3 countries (Germany, Greece, Luxembourg) reported requiring banks to give information for domestic proceedings in at least some instances and all but 4 countries (Germany, Greece, Ireland, Luxembourg) oblige banks to give information for international civil proceedings at least in some instances. In the context of debt collection and bankruptcy, all but 2 countries (Germany, Greece) obligate banks to provide information for domestic debt collection and bankruptcy in some instances, and all but 3 countries (Austria, Germany, Greece) must provide such information for international proceedings in some instances. 70. In addition, all Member countries except Korea (which is waiting for the legislative ratification of the anti-money laundering bill proposed by the Government) and the Netherlands (which does not have legal bank secrecy) have taken measures to relax bank secrecy to combat money laundering. More than half of the OECD Member countries that have taken such measures have some access to this information for tax administration purposes. Tax purposes 71. As discussed more fully below, most countries permit tax authorities to obtain access to bank information through an exception to the general rule or law that establishes the confidentiality of bank information. In a small number of countries, this access is limited to situations involving criminal proceedings or tax fraud. In Luxembourg, tax authorities do not have direct access to bank information for tax purposes and bank information may only be obtained by judicial authorities in cases of suspected tax fraud. Bank account information requirements 72. Access to bank information is valuable to tax authorities only if the bank possesses useful and reliable information regarding the identity of its customer and the nature and amounts of financial transactions. 17. The questionnaire asked countries to respond either “yes,” “no” or “in some instances”. It was not apparent from the answers what distinctions each country made between a:”yes” and “in some instances.” Thus, for purposes of this summary, the affirmative responses are grouped together and contrasted with the negative responses. 35 73. The use of anonymous and numbered accounts may pose a barrier to effective access to bank information for tax administration purposes if the identity of the account holder is not known to the bank.18 However, the vast majority of OECD Member countries prohibit the use of anonymous and numbered accounts. Anonymous accounts may be opened only in Austria and the Czech Republic and only in certain circumstances. Austria intends to reexamine its legislation concerning anonymous accounts in 2000. At present, anonymous accounts may be opened in Austria but only by its residents and only as savings accounts (bank deposit books). However, banks in Austria generally will know the identity of accountholders of large savings accounts. Austria’s foreign exchange regulations require the bank to verify the client’s residence status although the law does not specify the means of verification. Further, withdrawals from these accounts are only possible in cash; transfers to other accounts are not permitted. The Czech Republic limits anonymous deposits to an amount equivalent to US$3700. These deposits cannot be used for business transactions and the trend for the future is to prohibit the opening of new accounts of this type. 74. Numbered accounts may be opened only in Austria, Luxembourg and Switzerland. The identity of the numbered account holder is known by the bank in each of these countries. In Austria, the identity of both resident and nonresident accountholders is known except in the case of anonymous saving deposit books, which may be opened only by residents. 75. With regard to other types of accounts, all Member countries require banks to obtain information to identify the account holder. The level of information and documentation required to open accounts other than anonymous and numbered accounts varies from country to country. In general, most countries require banks to verify the name and address of the client by some type of official documentation (e.g., passport, identity card, driver’s license). Most countries that use tax identification numbers (TINs) require the domestic TIN to be provided to open an account but only ten countries (Denmark, Finland, Iceland, Korea, Mexico, Norway, Poland, Portugal, Spain, Sweden) require the customer to provide documentary evidence of the TIN. In April 1998, Turkey joined the group of countries that has the legal power to prohibit by law the opening of a bank account without a TIN. The Ministry of Finance of Turkey intends to use its legal power to require mandatory use of TINs for banking and other financial services in the near future. Australia and New Zealand do not require TINs to be provided but if they are not provided, 18. Similar difficulties arise with bearer bonds. 36 tax is withheld at the highest marginal rate. Poland requires each bank to establish its own identification and documentation requirements. 76. In general, a bank that does not comply with the information and documentation requirements for opening accounts is subject to penalties, which usually consist of fines or imprisonment of bank officials, or both. In Austria and Switzerland, it may even be possible to revoke the bank’s license. Means of removing funds from accounts 77. In general, there are no restrictions on the means of moving money out of accounts except in Austria. As noted above, Austria restricts withdrawals from anonymous savings accounts to cash withdrawals. It does not permit transfers from such accounts to other accounts. Several countries require reporting of certain types of transfers (e.g., Australia requires the reporting of telegraphic transfers) or transfers over a certain amount (e.g., Italy requires the registration of transactions over 20 million lira). Access to bank information for tax administration purposes 78. There are several ways in which tax authorities may obtain information from banks. One of the ways is through automatic reporting of certain types of information by banks to the tax administration. Currently, 19 Member countries require automatic reporting by banks. In general, countries require automatic reporting with respect to interest paid to taxpayers and on amounts of tax withheld on interest paid. In addition, some countries require the automatic reporting of the opening and closing of accounts, account balances at year end and interest on loans. 79. Some countries (France, Hungary, Korea, Norway, and Spain) have centralised data banks of certain bank account information. France requires financial institutions managing stocks, bonds or cash to report on a monthly basis the opening, modifications, and closing of accounts of all kinds. This information is stored in a computerised database which is used by the French tax administration for research, control and collection purposes. Korea has a separately designated database within the tax administration’s overall database which contains the information reported automatically by banks with respect to their interest payments (i.e., the amount of interest paid, tax withheld on the interest, bank account to which interest accrued, identity of accountholder together with his/her resident registration number or business registration number). This database is utilised mainly for the verification of income tax and 37 inheritance tax returns. The database in Spain is similar in that it identifies for each taxpayer the bank accounts of which he is the accountholder if there has been withholding at source, income from mobile capital if there has been withholding at source, and information on checks on current accounts received in cash over 500 000 pesetas. 80. One of the most important ways for tax authorities to obtain information from banks is through a specific request to the bank for particular information related to the tax case of a specific taxpayer. All Member countries permit their tax authorities, judicial authorities or public prosecutors to obtain information from banks in cases involving certain criminal tax matters. A vast majority also can obtain information from banks for purposes of verifying the tax liability of a particular taxpayer. 81. Several countries (Australia, Czech Republic, Denmark, Finland, France, Italy, Norway, New Zealand, Spain, and Turkey) can obtain bank information for tax administration purposes without limitation. Other countries may need to use a special procedure to obtain bank information such as a requirement (Canada), an administrative summons (United States) or consent of an independent commissioner (United Kingdom). Others have limitations as to the circumstances under which they can obtain information. For example, Portugal may obtain bank information only if a criminal proceeding is pending or if an enforcement order is issued by a court at the request of the tax administration and also in cases where fiscal benefits are provided through bank accounts (e.g., special treatment of retirement savings). 82. In certain circumstances, the tax authorities of some countries have the power to seize documents from banks or to enter the bank premises to examine the bank records directly. For example, Austria has the power to seize documents if the bank refuses to comply with a valid request for information. Italian tax authorities have direct access to the bank premises for purposes of examining bank records when the bank has not provided the required information or if there are doubts as to the completeness or accuracy of the information provided. 83. Most Member countries can obtain information from a bank about a third person who is not suspected of tax fraud but who has had economic transactions with a specified person suspected of tax fraud. In addition, most Member countries can obtain bank information that belongs to a family member of the person about whom the request is made. More than half of the Member countries can obtain information about the account holder’s economic situation, business activities, etc., which the bank has obtained for creditability purposes. All Member countries require banks to reveal whether a named person keeps an 38 account with it except: Austria, Luxembourg, and Switzerland which require the disclosure in criminal cases; Belgium, which will require the disclosure in exceptional cases, especially where there exists a presumption of the existence or preparation of tax fraud, and Portugal (except in criminal cases where a judge can decree the lifting of bank secrecy).

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The importance of bank secrecy 29. Bank secrecy has deep historical and cultural roots in some countries. Bank secrecy is also a fundamental requirement of any sound banking system. Customers would be unlikely to entrust their money and financial affairs to banks if the confidentiality of their dealings with banks could not be ensured. Unauthorised disclosure of such information to, for example, the persons with whom they do business (e.g., creditors, customers) could jeopardise the financial welfare of the clients of a bank. Similarly, unauthorised disclosure of matters of personal finance could also pose a threat. Thus, banks must guarantee a high degree of confidentiality in order to do business. As a consequence, bank secrecy initially arose out of the contractual relationship between the bank and its customer. This protection later was reinforced in many countries by legislation protecting the customer’s right to financial privacy. 30. Bank secrecy and the confidence which it brings to a country’s banking system can also stimulate the development of an active financial services industry. The banking and financial services sector is lucrative and growing. Bank secrecy is, however, but one factor in the growth of such services. The efficiency of the banking system, prevailing rates of interest and the general political and economic climate also affect decisions about where to seek financial services. 31. Because of the importance of bank secrecy to the stability of a country’s banking system, access to bank information by tax authorities should not be unfettered. Lifting of bank secrecy for tax administration purposes should always be coupled with stringent safeguards to ensure that the information is used only for the purposes specified in the law. Such safeguards in OECD Member countries include requiring senior level officials to approve requests to banks for information about a specific accountholder, a judicial or other formal process for obtaining the information, the imposition of severe monetary and /or criminal penalties on officials who misuse or disclose the information, or a combination of these measures. In many countries, the accountholder is notified when the tax administration seeks to obtain information about the accountholder’s account. In 20 addition, OECD Member countries have established stringent procedures to protect the information from unauthorised disclosure once the information has been provided to the tax administration. The adequate protection of taxpayers’ rights and the confidentiality of their banking information is particularly important for economies in transition that are attempting to establish sound banking and taxation systems. Protection of the information from unauthorised disclosure is essential to obtaining and maintaining confidence in the banking and taxation systems. The effects of bank secrecy on tax administration and law enforcement 32. Experience has shown over the last 50 years that inadequate access to bank information has been an impediment to tax administration and law enforcement. The scope of non-compliance with the tax laws that is facilitated by lack of access to bank information is difficult to measure precisely because there is insufficient access to the necessary information. The same problem exists in attempting to measure the extent of money laundering. Nevertheless, the FATF estimates that the size of that problem amounts to hundreds of billions of dollars annually8. Since many jurisdictions impose tax on both legal and illegal income and the proceeds of criminal activity usually are not reported as income by criminals, it is reasonable to assume that a large portion of laundered funds have escaped taxation in one or more jurisdictions.9 33. Another indication of the risk of non-compliance with the tax laws is the substantial growth of foreign assets and liabilities held by banks in OECD Member countries. Virtually all OECD Member countries showed substantial growth in the foreign liabilities held by deposit money banks, as reflected in the following chart, which is based on data compiled by the International Monetary Fund 10(see Annex I for complete data).

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The importance of bank secrecy 29. Bank secrecy has deep historical and cultural roots in some countries. Bank secrecy is also a fundamental requirement of any sound banking system. Customers would be unlikely to entrust their money and financial affairs to banks if the confidentiality of their dealings with banks could not be ensured. Unauthorised disclosure of such information to, for example, the persons with whom they do business (e.g., creditors, customers) could jeopardise the financial welfare of the clients of a bank. Similarly, unauthorised disclosure of matters of personal finance could also pose a threat. Thus, banks must guarantee a high degree of confidentiality in order to do business. As a consequence, bank secrecy initially arose out of the contractual relationship between the bank and its customer. This protection later was reinforced in many countries by legislation protecting the customer’s right to financial privacy. 30. Bank secrecy and the confidence which it brings to a country’s banking system can also stimulate the development of an active financial services industry. The banking and financial services sector is lucrative and growing. Bank secrecy is, however, but one factor in the growth of such services. The efficiency of the banking system, prevailing rates of interest and the general political and economic climate also affect decisions about where to seek financial services. 31. Because of the importance of bank secrecy to the stability of a country’s banking system, access to bank information by tax authorities should not be unfettered. Lifting of bank secrecy for tax administration purposes should always be coupled with stringent safeguards to ensure that the information is used only for the purposes specified in the law. Such safeguards in OECD Member countries include requiring senior level officials to approve requests to banks for information about a specific accountholder, a judicial or other formal process for obtaining the information, the imposition of severe monetary and /or criminal penalties on officials who misuse or disclose the information, or a combination of these measures. In many countries, the accountholder is notified when the tax administration seeks to obtain information about the accountholder’s account. In 20 addition, OECD Member countries have established stringent procedures to protect the information from unauthorised disclosure once the information has been provided to the tax administration. The adequate protection of taxpayers’ rights and the confidentiality of their banking information is particularly important for economies in transition that are attempting to establish sound banking and taxation systems. Protection of the information from unauthorised disclosure is essential to obtaining and maintaining confidence in the banking and taxation systems. The effects of bank secrecy on tax administration and law enforcement 32. Experience has shown over the last 50 years that inadequate access to bank information has been an impediment to tax administration and law enforcement. The scope of non-compliance with the tax laws that is facilitated by lack of access to bank information is difficult to measure precisely because there is insufficient access to the necessary information. The same problem exists in attempting to measure the extent of money laundering. Nevertheless, the FATF estimates that the size of that problem amounts to hundreds of billions of dollars annually8. Since many jurisdictions impose tax on both legal and illegal income and the proceeds of criminal activity usually are not reported as income by criminals, it is reasonable to assume that a large portion of laundered funds have escaped taxation in one or more jurisdictions.9 33. Another indication of the risk of non-compliance with the tax laws is the substantial growth of foreign assets and liabilities held by banks in OECD Member countries. Virtually all OECD Member countries showed substantial growth in the foreign liabilities held by deposit money banks, as reflected in the following chart, which is based on data compiled by the International Monetary Fund 10(see Annex I for complete data).

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