I n 2009, the international community made considerable progress in the implementation of high standards of tax transparency and exchange of tax information. Almost 200 tax information exchange agreements (TIEAs) were signed and 110 double taxation conventions or protocols were signed or amended to meet the Organisation for Economic Co-operation and Development (OECD) international tax standard, as developed by the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum).

Two Pacific Island nations, Samoa and the Cook Islands, are amongst those nations previously identified by the OECD as meeting the OECD ‘tax haven’ criteria, which have now substantially implemented (or committed to) the internationally agreed tax standard (discussed below).

By December 2009, the Samoan government had entered into 12 TIEAs and the Cook Islands government had entered into 11 TIEAs, which included a TIEA each with the Australian government. The TIEAs are based on the model agreement developed by the Global Forum to promote co-operation in tax matters through the exchange of information, bypassing historical obstacles to tax information exchange including domestic secrecy and confidentiality provisions.

Samoa is now on the OECD ‘white list’ (and one would expect the Cook Islands¹ will soon follow). This means the Global Forum no longer considers Samoa to be a tax haven because it has substantially implemented the OECD internationally agreed tax standard (discussed below).

The Global Forum’s standards of transparency and exchange of tax information are a model for the vast majority of the 3,600 bilateral tax conventions entered into by OECD and non OECD countries and are considered the international norm for tax co-operation.

The standards require:

• exchange of information on request where it is ‘foreseeably relevant’ to the administration and enforcement of the domestic laws of the treaty partner;
• no restrictions on exchange caused by bank secrecy or domestic tax interest requirements;
• availability of reliable information and powers to obtain it;
• respect for taxpayers’ rights; and
• strict confidentiality of information exchanged (together referred to as the International Tax Standard)4

The Global Forum sees that a good indicator of progress towards implementation of the International Tax Standard is whether a country has signed at least 12 TIEAs that meet the agreed standard

The Global Forum sees that a good indicator of progress towards implementation of the International Tax Standard is whether a country has signed at least 12 TIEAs that meet the agreed standard. This initial threshold is then reviewed to take account of:

Samoa was elevated to the white list because it has entered into 12 TIEAs with countries including: Australia, Sweden, Ireland and Finland.⁶ Yet, it remains to be seen whether the Global Forum will amend the white list during the peer review process that will take place over the next three years. The Global Forum was given a three-year mandate at its Mexico meeting in September 2009 to peer review all 91 members of the Global Forum to check compliance with the International Tax Standard.⁷ Of importance in this review process will be an assessment of how member countries, such as Samoa, practically implement and administer obligations under the TIEA provisions.

Although to date the International Tax Standard has been implemented largely through bilateral agreements, there are examples of multilateral instruments (such as the OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters) that are in operation. The OECD is examining and developing the possibility of extending the multilateral approach (especially for developing countries lacking resources to negotiate a series of bilateral agreements). Also the OECD is examining legislation providing for unilateral provision of taxation information exchange (as has been introduced in the Cayman Islands and St Kitts and Nevis). Both of these mechanisms could prove particularly helpful for developing countries, however clearer guidance regarding these alternative mechanisms is still needed.

Firstly, the TIEAs signed by Samoa and the Cook Islands with Australia are in most part identical. As such, this section generically discusses the key elements of both TIEAs.

The object and scope of the TIEAs is broad. The TIEAs provide for parties to assist one another through the exchange of information that is ‘foreseeably relevant’² to the administration and enforcement of either party’s domestic tax laws. This includes ‘information’ needed in the investigation and prosecution of tax matters. Taxes which are subject to the TIEAs are ‘taxes of every kind and description.’³

The term ‘information’ means ‘any fact, statement or record in any form whatever.’⁴

Article 5(4) of both TIEAs gives the requesting party not only access to bank account and financial information but also information regarding the ownership structures of companies, partnerships, trusts and foundations, including ownership information of all persons/entities in an ownership chain (unless that information is not held by relevant authorities or is not in the ‘possession or control’⁵ of a person(s) who is within the territorial jurisdiction of the relevant country).

One key limitation placed on an information request is Article 5(5). It provides that the revenue authority requesting the information must also demonstrate to the other party the ‘foreseeable relevance’ of the information requested. This is done by submitting additional information with an information request, including the identity of the person under examination. The Australian Tax Office also recognises ‘that the information requested can only relate to a specific investigation occurring at the time.’⁶ In fact a specific investigation will need to identify actual names of people to make a successful request and not just ‘classes’ of persons. Otherwise the revenue authority receiving the information request can decline the request under Article 7(1) of each TIEA.

In the Cook Islands and Samoa it is generally an offence to disclose information to any other person in relation to entities such as international companies, trustee companies and international partnerships, including information about the beneficial owners, management, account and transaction information, assets held and the general affairs of the entity (unless the disclosure falls within an exception).

However, both TIEAs contain provisions to circumvent local secrecy provisions by providing the revenue authority with the power to obtain and provide: (i) information held by banks, other financial institutions and any person acting in an agency or fiduciary capacity and (ii) information regarding the ownership of an entity/bank account or asset.

Both the Cook Islands and Samoa must enact enabling legislation nationally to give effect to the terms of both TIEAs before revenue authorities can circumvent secrecy or confidentiality provisions. To date the OECD has not been informed of any such legislation.

Article 5(1) of both TIEAs states that requested information shall be exchanged regardless of whether the conduct being investigated is a crime under the laws of the other country. This provision curbs any argument that the ‘double criminality rule’ must be satisfied before information can be obtained, an argument which, in some Pacific Island jurisdictions, could prevent mutual assistance legislation being used to obtain information.⁷

In the post global financial crisis world it means a whole lot more to be on the white list. Recent events across the globe highlight that the coordinated and sustained attack by some of the major players in the war on so called ‘tax havens’ is yielding fruit and forcing these jurisdictions to embrace the International Tax Standard.

To be on the white list means that countries will avoid ‘countermeasures’, which G20 countries stand ready to use from March 2010.⁸ For example, France has passed legislation⁹ which penalises certain investments made by French companies and investors in ‘non co-operative territories and states’ (ie black listed countries). One such measure is the increased withholding tax on French source income from 1 March 2010. Dividends and interest paid to a black list country are now subject to withholding tax at a rate of 50 per cent, regardless of the beneficiary’s domicile (similar payments to other non-residents are subject to a withholding tax at a maximum rate of 25 per cent). Also on 1 March 2010, France published its first black list naming 18 states and territories, including the Pacific Island nations of: Nauru, Niue, the Cook Islands and the Marshall Islands.

Furthermore, the perceived legitimacy associated with moving onto to the white list should open new doors of commercial activity (or at least maintain it) and build on foreign investor confidence in these countries.