Taxpayers’ rights and guarantees in relation to the exchange of tax information and its new paradigms Part II

“In a previous post we started the analysis of the topic. Then we finish developing it. ”


2. Taxpayer right and guarantees

Article 21.1 of the OECD’s Mutual Administrative Assistance Convention, updated through Protocol 2010, provides that: “Nothing provided in this Convention will be interpreted in the sense of limiting the rights and guarantees granted to the persons by the legislation or administrative practice of the requested State”.

A no less important issue is the taxpayer’s right that the information exchanged be used for the requested purpose –which responds to the legal framework in force- and that confidentiality and safe handling guarantees be given to avoid possible leaks.
One should warn about the possibility of carrying out the EOI without complying with all the requisites that guarantee a correct use of these tools, including tax secrecy obligation, which would affect rights and guarantees considered fundamental, such as property, entrepreneurial secrecy, confidentiality of  information, juridical security and legality.

According to the internal legislation of a country, the information obtained or held by the tax Administration (TA) is information of a confidential and protected nature, subject to strict tax secrecy regulations, delimited by the existence of taxpayer rights and guarantees with respect to the procedure whereby it is obtained and used by the TAs and courts. Therefore, the EOI should be subject to the same tax secrecy rules, that is, the information should only be disclosed to the authorized persons and for the purposes allowed by the national regulations and the taxpayer should be provided the necessary juridical means so that, through the exercise of his rights, he may control the legality of te EOIs. Besides, a misuse or leak could constitute sufficient reasons so that the counterpart in the treaty or agreement could denounce it and thus discontinue the collaborative relationship.

Likewise, one should highlight the possible use made of the information obtained for other purposes, to the extent that the agreed or national legal framework enable it and with previous authorization, as appropriate, for example, for issues dealing with the control of money laundering and other economic and financial offenses.  It should be clarified herein that the purpose of the request must necessarily deal with taxation, within the anticipated legal scope, but then the information obtained could be used for different purposes if the legal framework warrants it.

On the other hand, a relevant issue deals with the possibility that a contracting State, according to the internal legislation, in the case of the REOI must notify the person who provided the information or the taxpayer under examination.  This information should be formally offered to the other contracting State prior to the signing of the agreement and hereinafter, provided that the corresponding regulations were subject to modification.
The comments on the OECD’s Model Tax Convention on Income and Net Worth anticipate that the possible notification should unduly prevent or delay the effective exchange of information. Such notification procedures could constitute an important element of the rights guarantee by the internal legislation. They may contribute to avoid errors (e.g., in cases of erroneous identity) and to facilitate the exchange (on allowing the notified taxpayers to voluntarily cooperate).

Now then, they should not unduly prevent or delay the effective exchange of information. For example, the notification procedures should allow exceptions to the previous notifications, for example, in cases wherein the information request is of a very urgent nature or the notification could affect the possibilities of success of the investigation carried out by the State which requested the information.

There could be the case of a country which does not require the notification to the taxpayer, but according to Personal Data Protection regulations, in an international transfer of information it is required, for example, to inform those affected about the addressees of the data, the purpose, the use which the addressee may make of the data, etc. In principle, one must verify in said regulation or another, if there are exceptions vis-a-vis examinations for compliance with tax obligations, requests for information etc. In any case it will be necessary to render compatible the right of access to said information with the application of the regulations regarding EOI, bearing in mind that any limitation to said right must be justified and not broken. One could only restrict the access to the information to be exchanged if there is pressing public interest thus justifying it.

For the OECD, within the rights of protection of the taxpayers affected by the EOI procedure, generally applicable in the State that will transmit the information, the requested one, in addition to the previously revised “right of notification”, there may be two other guaranteeing categories, the “right of consultation or hearing” and the “right to intervention”, in this latter case subjecting it to an administrative or judicial process.
Given that the exercise of these rights of participation may be an obstacle to the EOI to the point of  thwarting a request for information, the OECD proposes a balance of all the elements in conflict, giving preeminence to the struggle against international tax fraud, and leaving the rights of taxpayers within the sphere of national rights, according to the regulation in force in each country.

Finally, one must consider the net worth responsibility of the Administration, vis-a-vis the EOIs that may cause a net worth or economic damage to the taxpayer, for example, business secrets that may affect the production or distribution of some good or service, who may act by filing claim for the damages caused.

Lastly, it is worth asking if the EOI should continue to be considered almost exclusively as a tool for struggling against tax fraud, which limits the rights of the taxpayers that are protected by national regulations. Some propose to move forward in the recognition of the taxpayer rights in the EOI in the international instruments agreed, bearing in mind that it should not be an obstacle to its procedure. In this sense, they sustain that it is logical to understand that neither the right of notification, or even the right of hearing or consultation constitute a serious obstacle and in this way, those affected could better safeguard their rights and guarantees vis-a-vis possible excesses and violations of the regulations and principles.

3. Exclusive use of the tax administrations?

An issue that deserves certain debate is whether only the TAs may use this tool to fight against tax fraud or, if also the taxpayers may request their use or even the  judicial courts, always within the scope and with the limitations provided in the rules that regulate it.

No limitations are observed that prevent the taxpayer from requesting the respective TA the use of a legal instrument for obtaining information determined by the latter, for purposes of defending his position vis-a-vis the action of the TA.

Likewise, a judge, whether in a justice court in the administrative or judicial sphere, in addition to its own international collaboration mechanisms, may request the TA as a measure of better providing, to obtain tax information relevant in a certain country with which there is the legal possibility of exchange of information to solve the controversy that is being considered or even the taxpayer himself, who is appealing an administrative decision who may have proposed as evidence certain information available in other countries.

4. New paradigm of tax information exchange

Within a context of high and progressive digitalization of the economy and wherein the TAs themselves incorporate new management technologies, in the area of assistance and information to facilitate compliance, as well as in that relative to the control and repression of noncompliance, the EOI may acquire new modalities in a not too remote future.

Thus, it is possible to mention experiences such as the X-Road platform of Estonia which includes international administrative cooperation based on Blockchain technology and up to imagining the countries sharing information in the  “cloud”; that is, in an immediate manner large amounts of tax data. An e-Tax environment proposes a greater volume, dynamism and availability of e-information that may be shared, even in real time, which may lead to increase attention with respect to the rights and guarantees of the taxpayers and even to their reconsideration.

5. Some conclusions

There are two positions that could be considered extreme. On the one hand, there are those who consider the EOI as an international fiscal anti-fraud instrument and in this way they firmly limit the taxpayer’s intervention in defense of his rights, while on the other, there are those who look at these clauses with great distrust and tend to maximize the rights of participation of the taxpayer vis-a-vis an EOI up to the point of preventing or seriously obstructing them. Neither one position or the other lead to a good solution. But to the extent taxpayers ever more and better perceive that their rights and guarantees are being respected, their collaboration with the TAs and by extension with the EOI will be greater and better.

One cannot disregard the fact that the taxpayer’s rights and guarantees are the necessary counterpart for the juridical balance in the TA’s procedures and actions. No one can ignore that the anti-fraud objective of the EOI is not unique or the main one; rather there are other properties or rights, even constitutional ones that are worthy of protection, to control the flow of personal information, participate in administrative procedures, control the legality of administrative actions, etc.

Lastly, the new EOI paradigms based on the new technologies (e.g., Blockchain) will necessarily lead to the review and even the reconsideration of the taxpayers’ rights and guarantees.




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Disclaimer. Readers are informed that the views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group the author might be associated with, nor to the Executive Secretariat of CIAT. The author is also responsible for the precision and accuracy of data and sources.

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