In October and December 2009 the governments of the Cook Islands and Samoa each entered into a Tax Information Exchange Agreement (TIEA) with the Australian Government . As this article discusses, both TIEAs are based on the model agreement developed by "OECD Global Forum Working Group on Effective Exchange of Information" to promote co-operation in tax matters through the exchange of information. The TIEAs are drafted to bypass historical obstacles to information exchange on tax matters including the circumvention of national secrecy and confidentiality provisions.
Samoa on the OECD 'White List';
Samoa, and one would expect very shortly the Cook Islands1, is now on the OECD 'white list'. This means the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) considers that Samoa has substantially implemented the OECD internationally agreed tax standard2 (OECD International Tax Standard3) . In the eyes of the OECD, Samoa is no longer considered a 'tax haven'.
How did Samoa meet the OECD International Tax Standard?
The OECD have suggested that there is no 'hard and fast' rule as to whether the OECD International Tax Standard has been implemented, however, a good indicator of progress is whether a jurisdiction has signed at least 12 TIEAs that meet the OECD International Tax Standard. Such TIEAs must then be given effect through the enactment of enabling legislation4. Samoa has entered into 12 TIEAs with countries including Australia, Sweden, Ireland and Finland5.
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 OECD International Tax Standard6. Of importance in this review process will be an assessment of how member countries such as Samoa and the Cook Islands practically implement and administer the OECD International Tax Standard and their willingness to continue to enter into further TIEAs.
Analysis of the Samoa and the Cook Islands TIEAs
Firstly the TIEAs signed by Samoa and the Cook Islands with Australia are in most part identical. As such, this article generically discusses the key elements of both TIEAs and highlights any key differences.
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"7 to the administration and enforcement of either party's domestic tax laws. This includes information needed in the investigation and prosecution of tax matters (see below for a discussion on "information"). Taxes which are subject to the TIEAs are (in the case of Samoa and the Cook Islands) "taxes of every kind and description"8 .
What type of information can be obtained on request?
The term 'information' means "any fact, statement or record in any form whatever"9.
Article 5(4) of both TIEAs gives the requesting party not only access to bank account and financial information but also access to information regarding the ownership structures of companies, partnerships, trusts, foundations including ownership information of all persons/entities in an ownership chain (unless that information is not held by relevant authorities or not in the "possession or control"10 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 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 examination11. The ATO also recognises "that the information requested can only relate to a specific investigation occurring at the time"12. In fact the drafting of Article 5(5) further suggests that such 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.
What about secrecy and confidentiality provisions?
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). (See "The Pacific Islands Region: Being on the OECD Grey List"
However, both TIEAs contain provisions to circumvent local secrecy provisions by providing the relevant revenue authority with the power to obtain and provide information held by banks, other financial institutions and any person acting in an agency or fiduciary capacity such as trustees and 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 legislation13.
What if the investigated conduct is not a crime in the other country?
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 information14.
When do the TIEAs come into effect?
The TIEAs have effect:
- for criminal matters - from 1 July 2010 with historical application; and
- for all other covered tax matters from 1 July 2010, but only in relation to taxable periods from 1 July 2010 onwards or tax liabilities that otherwise arise on or after this date.
Given the 1 July 2010 start date we would expect the Samoan and Cook Islands Governments to respectively enact legislation to give effect to the TIEAs shortly.
Both TIEAs continue indefinitely unless terminated by a party. The Australian – Samoa TIEA can be terminated on six months notice after three years whereas the Australian – Cook Islands TIEA can be terminated on six months notice after one year.
Future alternatives for tax information exchange
Depending on the country, various avenues are open to revenue authorities in the collection of tax information, including:
- traditional international tax agreements (DTA) (which generally include an exchange of information provision);
- mutual assistance legislation; and
Which avenue is selected depends on a range of factors including whether the request relates to a civil or criminal tax matter, what type of tax, who, and the proven effectiveness of a method in successfully obtaining information.
Only a TIEA can provide authorities with access to information in relation to criminal and civil tax matters for all types of taxes. For example, mutual assistance legislation in Samoa and the Cook Islands relates to criminal matters only15 and DTAs (for example the Australia - Papua New Guinea DTA16) limit the tax information that can be exchanged to the taxes listed under the DTA.
However, mutual assistance legislation may also be an effective means (and broader tool) through which revenue authorities can obtain information albeit in criminal matters only. In the Vanuatu case of Partners of PKF Chartered Accountants v Supreme Court of the Republic of Vanuatu; Batty v Supreme Court of the Republic of Vanuatu; Moores Rowland (a Firm) v Attorney General (PKF Case17), the validity of a warrant to obtain account information in relation to an Australian tax offence was upheld because, amongst other things, the conduct was deemed to be a "serious offence"18 in Vanuatu under the mutual assistance legislation. The applicant argued that the definition of "serious offence" also invoked the double criminality rule (and since Vanuatu does not have income tax legislation) the double criminality rule could not be satisfied. However, the court rejected this submission finding that the alleged offence (ie. fraud) was also an offence under the Penal Code Act 1981 [CAP 135] of Vanuatu19.
It is possible that revenue authorities could, for example in the Cook Islands, adopt a similar approach to the PKF Case (in collecting information) through the Mutual Assistance in Criminal Matters Act 2003, by showing that the offence under investigation in a foreign country is also an offence in the Cook Islands. To establish this would be even less onerous in Samoa given that the definition of "criminal matter"20 is broader again.
Nevertheless use by revenue authorities of TIEAs as an effective tool for tax information exchange in the Pacific is yet to be seen. Of critical importance will be the way in which enabling legislation allows a TIEA to be implemented and administered and whether that process is an effective alternative to existing mechanisms.
1. As at 10 February 2010 the Cook Islands has entered into 11 tax information exchange agreements (TIEAs): see http://www.oecd.org/dataoecd/50/0/43606256.pdf and http://www.oecd.org/document/37/0,3343,en_21571361_43854757_44270949_1_1_1_1,00.html
2. The international tax standard which was developed by the OECD requires exchange of information on request in all tax matters for the administration and enforcement of domestic tax law without regard to domestic tax law and bank secrecy provisions for tax purposes.
3. For a discussion of the OECD International Tax Standard please see our article, "The OECD International Tax Standard and the Current State of Play" at http://220.127.116.11/~plncom/index.php?option=com_content&task=view&id=94
4. "Promoting Transparency and Exchange of Information for Tax Purposes", OECD, 10 February 2010, page 3, paragraph 6, http://www.oecd.org/dataoecd/32/45/43757434.pdf
5. Viewed at http://www.oecd.org/document/37/0,3343,en_21571361_43854757_44270949_1_1_1_1,00.html on 17 February 2010.
6. Note 4 at page 3.
7. Article 1, Agreement between the Government of Australia and the Government of the Cook Islands on the Exchange of Information with Respect to Taxes and Article 1 Agreement between the Government of Australia and the Government of Samoa on the Exchange of Information with Respect to Taxes.
8. Article 3, Ibid.
9. Article 4(1)(j), Ibid.
10. Article 2, Ibid
11. For a list of information that the requesting party must provide please see Article 5(5), Ibid. The Cook Islands - Australia TIEA adds an additional requirement being that the requesting authority must state the grounds for believing that the information requested is foreseeably relevant to the tax purpose of the request: Article 5(5)(d).
12. "Tax information exchange agreements – overview", Australian Tax Office viewed at http://www.ato.gov.au/corporate/content.asp?doc=/content/00161107.htm on 17 February 2010.
13. "Promoting Transparency and Exchange of Information for Tax Purposes", OECD, 10 February 2010, page 4, http://www.oecd.org/dataoecd/32/45/43757434.pdf.
14. For example in the Cook Islands under the Mutual Assistance in Criminal Matters Act 2003 and in Vanuatu under the Mutual Assistance in Criminal Matters Act [Cap 285].
15. See section 2 Mutual Assistance in Criminal Matters Act 2003 (the Cook Islands) and section 3 Mutual Assistance in Criminal Matters Act 2007 (Vanuatu).
16. International Tax Agreements Act 1953, schedule 29 - Papua New Guinea Agreement, Article 25
17.  VUCA 15; Civil Appeal Case 15, 16 and 17 of 2008 (25 July 2008). For a further discussion of this case please see "The Pacific Islands Region: Being on the OECD Grey List" at http://18.104.22.168/~plncom/index.php?option=com_content&task=view&id=95.
18. An act or omission that, had it occurred in Vanuatu, would have constituted an offence under the Mutual Assistance in Criminal Matters Act [Cap 285] for which the maximum penalty is imprisonment for at least 12 months.
19. PKF Case at paragraph 19.
20. Section 1, Mutual Assistance in Criminal Matters Act 2007.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.