Role of Tax Information Exchange Agreements in Curbing Tax Evasion and Avoidance

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Customer Care No. 91-11-45562222
Role of Tax Information Exchange Agreements in
Curbing Tax Evasion and Avoidance
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• Introduction
• Over a long time, the relationship between the
  activation of financial resources for development
  and international tax cooperation have featured
  prominently in the outcomes of various reports of
  the bodies working at the international level to
  coordinate and harmonize the efforts of various
  countries to eliminate tax evasion and avoidance
  en masse. Tax treaties play a very crucial role
  in the context of international cooperation in
  tax matters. On the one hand, they encourage
  global investment and consequently, global
  economic growth by reducing or eliminating
  international double taxation over cross-border
  income, and on the other hand these treaties go a
  long way in enhancing cooperation among tax
  administrations, in dealing with international
  tax evasion. A Tax Information Exchange Agreement
  (TIEAs) allows for the free trade of financial
  tax information irrespective of differences in
  either a country's requirement or meaning of a
  predicate crime to tax evasion and money
  laundering. Often, conflict may arise among
  countries when a particular country must access
  information that may be held by a foreign legal
  system, for the enforcement of its own laws.
  These conflicts are resolved through the
  execution of collaborative tax treaties.

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• The Organization for Economic Cooperation and
  Development (OECD) has established various
  standards on transparency and exchange of
  information for tax purposes and it strongly
  encourages countries to adopt these standards in
  their dealing with each other on such matters.
  The OECD and the Financial Action Task Force,
  members of which are the G-20 countries, have
  stated that a country must have at least twelve
  TIEA's in order to be regarded as co-operating in
  matters of tax information exchange transparency.
  The jurisdictions which fail to achieve this
  target are regarded as non-cooperative
  jurisdictions. These exchange agreements are
  intended to permit full exchange of information
  on criminal and civil tax matters between the two
  signatories. The present study looks into the
  detailed aspects of tax information exchange
  among countries and its various general and legal
  facets.
• Taxes have been rightly called the building block
  of civilization. International Taxation refers to
  the tax treatment of international transactions.
  Since all countries have their own tax rules and
  the rules of one nation are rarely perfectly
  consistent with those of another, it is possible
  that income will be taxed more than once in the
  hands of the same recipient, which is sometimes
  referred to as double taxation, or that it will
  go untaxed by any jurisdiction. Both efficiency
  and natural concept of fairness dictates that all
  those who benefit from the services provided by
  the government, should help to pay for it.

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• The resolution of this issue is the main purpose
  of international tax agreements (ITA), which seek
  to set out detailed allocation rules for
  different categories of income. On one hand,
  international tax agreements deal mainly with the
  elimination of double taxation, on the other
  hand, they also serve other purposes like the
  provision of non-discriminatory rules, the
  prevention of tax evasion, arbitration and
  conflict resolution. The blurring boundaries of
  countries, including increasing inter national
  investment and trade, has increased the chances
  of conflict between tax jurisdictions. At the
  center of jurisdictional conflicts lies the issue
  of the jurisdiction to tax.
• There are no restrictions however, under
  international law to a legislative jurisdiction
  to impose and collect taxes. In most of the
  countries, the jurisdiction of imposing and
  charging tax is based on the internal legislative
  process, which is an expression of national
  sovereignty. Countries apply their jurisdiction
  to tax, based on varying combinations of source
  and residence principles. This, together with the
  inherent differences in definition, accounting
  principles and practices, and income recognition
  rules, may result in double taxation in the hands
  of the same entity or, in some cases, in a
  jurisdictional vacuum. The most important issue
  lying beneath all international tax
  considerations is how the revenue which is
  collected from taxes imposed on income earned by
  the entities of a transnational corporate system
  is allocated among different countries.
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