It takes two to tango: International exchange of information on tax matters and the protection of taxpayer s rights

Transcription

1 It takes two to tango: International exchange of information on tax matters and the protection of taxpayer s rights Anke Feenstra 1. Introduction 2. Recent developments 3. Exchange of information between Taiwan and the Netherlands 4. Protection of taxpayer s rights 5. Conclusions Advocaat-partner at Hertoghs advocaten-belastingkundigen ( Hertoghs advocaten-belastingkundigen is a Dutch law firm that specializes in the defense of taxpayers in civil, administrative and criminal law cases.

2 002 葛克昌教授祝壽論文集 1. Introduction Over the last few years, there has been a growing interest in the international exchange of information on tax matters. During political conferences on an international and a European level, there have been signs that the exchange of information to prevent tax fraud, avoidance and evasion is high on the political agenda. This article will give a short inventory of the recent developments at the international, European and Dutch levels. After this, I will examine the tax agreement between Taiwan and the Netherlands, specifically with regard to the possibilities of the exchange information between these countries. Finally, the (lack of) protection of taxpayer s rights in the Netherlands will be discussed. 2. Recent developments In the United States of America, the Foreign Account Tax Compliance Act (FATCA) came into effect on 1 January According to this law, all financial institutions (worldwide) should provide information on US taxpayers, beginning in 2014, to US tax authorities. The United States clearly wants to fight tax fraud. Meanwhile, the five largest EU Member States (Germany, France, Italy, Spain and the UK) have announced the launch of a pilot project to battle tax evasion and promote fiscal transparency. These countries will automatically exchange data with each other based on the American FATCA model. The Netherlands have joined with a number of other EU Member States in this pilot, signing the FATCA agreement with the US on 18 December The European Commission has already indicated that the FATCA model should also be applied within the EU.

3 It takes two to tango: International exchange of information on tax matters and the protection of taxpayer s rights 003 On 6 December 2012, the European Commission published its policy to fight tax evasion over the short and medium terms. It has also presented an action plan to fight tax evasion at an international level. Part of this plan includes improving the exchange of information between EU member states. This automatic exchange of information, deemed relevant for taxation among EU Member States, is a useful tool in the fight against tax evasion, according to the European Commission. The European Commission has also announced that EU Member States should give each other more access to government databases. At the G8 summit in Ireland in June, 2013, meanwhile, the leaders of eight leading EU Member States promised to make themselves strong for a new international standard for transparency based on the principles of an automatic exchange of information between tax authorities. At the Economic and Financial Affairs Council (Ecofin Council), of 20 and 21 July 2013, the European Commission proposed far-reaching changes to the existing administrative cooperation directive. As a result of these changes, the automatic exchange of information should be extended to all types of income. In the communiqué of the Ministers of Finance of the G20 countries (on 19 and 20 July 2013 in Moscow), such an automatic exchange of information was declared the new global standard. Next, on 20 March 2014, the President of the European Council announced that the EU Member States had all agreed to the automatic exchange of tax-related information. On 29 October 2014, 51 countries signed a declaration on the automatic exchange of tax information, which will go into effect in September 2017 for 48 countries and in September 2018 for 3 remaining countries. Luxembourg and Austria were reluctant at first, because of their banking secrecy, but eventually signed the declaration.

4 004 葛克昌教授祝壽論文集 According to the Common Reporting Standard, Dutch financial institutions will have to begin identifying their customers beginning 1 January 2016 in addition to verifying where their customers reside. We have also seen changes at a national level. The most important of these are the amendments, which went into effect on 1 January 2013, on the International Assistance (Levying of Taxes) Act (Wet op de internationale bijstandverlening bij de heffing van belastingen, hereafter referred to as the WIB ). The modified Act reinforced the existing rules on automatic information exchange. As of 1 January 2015, data on labor income, management fees, life insurance, pensions and ownership of and income from immovable property will be exchanged automatically. Further, on 30 May 2013, the State Secretary of Finance announced that the procedures required prior to the international exchange of data then in place would be canceled. This procedure, which emphasized notification beforehand, was in place for interested parties to enable the suspension of the exchange of information. The notification was, unless for compelling reasons, sent regarding the exchange of information on request and spontaneously, but only with respect to direct taxes. By abolishing the notification requirement, the Netherlands is attempting to follow the other EU Member States, most of which no longer have notification procedures in place. The Minister of Finance also indicated, on August 30, 2013: The Netherlands will greatly enhance fiscal transparency and update tax treaties with low-income countries and low-middle income countries. Thus, tax treaties with Zambia and 22 other poor countries revised to add that desired anti-abuse provisions. That is written by the Minister for Foreign Trade and Development and the Minister of Finance in a letter to the House in which they include responding to inquiries from the Economic

5 It takes two to tango: International exchange of information on tax matters and the protection of taxpayer s rights 005 Research Foundation (SEO) and the International Bureau of Fiscal Documentation (IBFD). The government is taking the following measures: (...) The Netherlands will inform its treaty partners spontaneously when, in retrospect, a company turns out not to meet the substantial activity requirements. Thanks to this improved information exchange with the source country, that country will be in a position to deny the treaty benefits to a company. (...) Since the exchange of international data is so high on the agenda, banking secrecy and tax havens in foreign countries are increasingly under pressure. Therefore, over the last few years, an enormous number of TIEAs (Tax Information Exchange Agreements) were signed with countries that have banking secrecy laws or are considered tax havens. Given these recent developments, the exchange of tax information will become more intensive all over the world. The Netherlands government seems especially eager to cooperate since the Netherlands has repeatedly been qualified as a tax haven. It goes beyond the scope of this article, however, to discuss the validity of this qualification. 3. Exchange of information between Taiwan and the Netherlands On 27 February 2001, an agreement was signed between the Taipei representative office in the Netherlands and the Netherlands trade and investment office in Taipei for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. This agreement came into force on 8 June 2001.

6 006 葛克昌教授祝壽論文集 The agreement contains the following section on the exchange of information: Section The competent authorities of the territories shall exchange such information as is necessary for carrying out the provisions of this Agreement. Any information so exchanged shall be treated as secret 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 Agreement. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. 2. In no case shall the provisions of paragraph 1 be construed so as to impose on the competent authority of a territory the obligation: a. to carry out administrative measures at variance with the laws and the administrative practice of that or of the other territory; b. to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other territory; c. to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (order public). 3. This Article shall not affect the rights and safeguards available to persons under the laws or the administrative practice in the territory requested to exchange information under paragraph 1.

7 It takes two to tango: International exchange of information on tax matters and the protection of taxpayer s rights The competent authorities of the territories shall by mutual agreement settle the mode of application of this Article. This section provides the opportunity for the Netherlands and Taiwan to exchange that information necessary for carrying out the agreement. It is also limited to income tax as specified by national law for both parties. It should be remarked that in section 26 the word necessary is used while, in the Netherlands, the tax authorities are able to request information that might be relevant for tax purposes (section 47 General State Taxes Act, Algemene wet inzake rijksbelastingen, hereinafter referred to as AWR ). The terms in section 26 of the agreement between the Netherlands and Taiwan, therefore, seem more restrictive than the definitions already being used in the Netherlands for national requests, where requested information is not limited to information that can be used for tax assessments, but includes information that could also be necessary for tax collection or enforcement and the prosecution of tax decisions. Remarkably, there is no section in the Taiwan/Netherlands agreement with regard to actual assistance with the collection of taxes. In paragraph 1, it is also noted that the information must be dealt with in strict confidentiality and may only be disclosed to limited persons and bodies for limited purposes. This provision has led to court cases in the Netherlands when interested parties have tried to prevent (part of) the exchange of information on the basis of the WIB. In such procedures, the tax inspector generally claims that the documents regarding the exchange of information, such as any correspondence and the request itself, should remain undisclosed to the interested party. In a case about the explanation of a similar section (section 25) in the Tax Treaty between the Netherlands and

8 008 葛克昌教授祝壽論文集 Japan 1, a lower court recently decided as follows: The last sentence of Section 25, second paragraph, of the Tax Treaty states that parties have agreed that the information exchanged may be used in a (public) hearing. Restrictions of this in this section are not included. Having regard to the first sentence of Section 25, second paragraph, only authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to the paragraph can bring such information on the basis of this section in any judicial proceedings. Now, in this procedure, there is no involvement of the tax authorities regarding the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes referred to in the first paragraph. This is a procedure relating to the law on international assistance in the field of taxation and therefore the last sentence of the second paragraph of Section 25 of the Tax Treaty does not apply. The information between the states should therefore remain confidential under the Tax Treaty in this case. The court hereby expressly leaves the line as expressed in the decision on the preliminary injunction by plaintiff with number 14/3605 dated 6 October Now confidentiality between the Netherlands and Japanese agreed to, is unlike the Plaintiff submits ( and it is) sufficiently plausible that the submission of the documents will have a negative effect on the willingness of Japan to provide information to the Netherlands. This interpretation of the secrecy clause makes it difficult to get information for interested parties about the request in an attempt to prevent the exchange of information. These various aspects of section 26 leave room for a discussion on whether tax payer s rights can be actually protected when a request for an 1 Court Noord-Holland 19 november 2014, ECLI:NL:RBNHO:2014:10847.

9 It takes two to tango: International exchange of information on tax matters and the protection of taxpayer s rights 009 exchange of information is sent. 4. Protection of taxpayer s rights The point of departure for Dutch taxation law is the duty of confidentiality as codified in section 67 AWR. This section forbids anyone who performs any work within the context of taxation to disclose information about taxpayers further than necessary for the implementation of the tax law or for the collection of taxes 2. In principle, the international exchange of information without express statutory legitimacy is therefore not allowed. Having adequate information available is a condition for taxation, however. That is why, on 24 May 1986, the WIB was introduced 3. The WIB includes a statutory basis for the international exchange of information and administrative assistance in the levying of taxes. During the parliamentary debate, it was stated that having proper information available in all countries prevents, on the one hand, taxes levied on gains resulting from international transactions neither abroad nor in the Netherlands and, on the other hand, double taxation 4. Under the WIB, it is possible to provide information falling under the national duty of tax secrecy to the tax authorities of another state under certain conditions. Taxes levied by central governments as well as local governments fall under the scope of the WIB. Turnover taxes, excise duties and import and export duties, however, do not. These levies fall into the direct scope of European regulations 5. Since the agreement between the 2 Section 67 AWR includes a comparable confidentiality provision with respect to work within the context of this Act. 3 Bulletin of Acts and Decrees 1986, Parliamentary Papers II 1984/85, , no 3, p See, for example, Regulation (EEC) 218/92.

10 010 葛克昌教授祝壽論文集 Netherlands and Taiwan (only) addresses income taxes, the WIB is applicable. In the WIB, the provision of information must be based on an international or interregional regulation, which is applicable to the relationship between the Netherlands and the state requesting or providing the information, such as section 26 of the agreement between the Netherlands and Taiwan. A distinction can be drawn between various forms of exchange. Information can be exchanged at the request of a foreign authority, for example, and can also be exchanged automatically, which constitutes the regular provision of information to a foreign authority on certain groups of persons. Finally, information can be exchanged with foreign countries spontaneously. The procedural rules included in the WIB apply to all procedures. Until 31 December 2013, according to these rules, which were amended beginning 1 January 2014, the procedure was as follows. Before the information was provided to the foreign authorities spontaneously or upon request, the party holding the information was informed of the decision to provide the information to the foreign authorities. It then was possible to submit an objection against this decision to the Tax and Customs Administration, after which an appeal could be submitted to the court. Following the initial notification, the information was not to be provided to the foreign authorities for ten days. Under section 6:16 of the Netherlands General Administrative Law Act (Algemene wet bestuursrecht, hereinafter the AWB ), lodging an objection or an appeal has no suspensive effect. During the ten-day period, however, it was possible to request preliminary relief from the court under section 8:81 of the AWB. By means of this preliminary relief, a party could suspend the exchange of information until the time when a decision was made on the objection and appeal. If the

11 It takes two to tango: International exchange of information on tax matters and the protection of taxpayer s rights 011 information was exchanged automatically and concerned large groups of persons, however, no individual notification was given, but a general notification was published in the form of a message in the Government Gazette. Parliamentary history shows that the ten-day period was prescribed with a view to protecting the interests of the persons concerned 6. However, legislator has since considered this rationale to be no longer valid. Moreover, some pressure was exerted on an international level for the purpose of a revision of the Dutch procedure for the international exchange of information. In 2011, the Netherlands received a peer review 7 from the Global Forum on Transparency and Exchange of Information on Tax Matters (hereinafter: Global Forum), which reports to the G20. In line with the recommendations of the peer review and the new EU assistance directive, the Netherlands re-considered the above-described procedural rules. The notification procedure was eventually cancelled beginning 1 January Here, the Netherlands emphasised that there were sufficient guarantees in all countries with which information was exchanged to ensure the confidentiality of the shared data 9. Moreover, the EU Assistance Directive and the information exchange section in the Dutch bilateral and multilateral conventions pertaining to information exchange which are based on the OECD Model Tax Convention assume the same level of data protection by the affiliated parties. The regulations and practices of all 120 countries affiliated with the Global Forum are being or will be tested in the Global Forum peer review process for compliance at this level. The most 6 Parliamentary Papers 1984/85, , no Peer review Global Forum 26 October Bulletin of Acts and Decrees 2013, Parliamentary Papers II 2013/14, , no 3, p. 10.

12 012 葛克昌教授祝壽論文集 important exchange partners with the Netherlands are affiliated with the Global Forum. Given the purpose of the relevant guidelines and conventions, the data provided may only be used for the levy of taxes and, where necessary, for any other detailed government purpose, such as determining and collecting social security contributions or in court proceedings on the violation of a tax law. Finally, legal remedies are available for taxpayers against the relevant (foreign) assessment for which the requested information has been used. However, this does not alter the fact that Dutch interested parties whose data have been provided to foreign countries for the purpose of taxation no longer have a guarantee that ensures confidentiality of their information abroad or that prevents data from being provided or used unlawfully or copied or shown incorrectly. This is why the tax literature urges that the prior notification rules should be reintroduced. Although prior notification has been effectively cancelled, it is still possible to object to the exchange of information, even though the information will most likely already have been sent abroad. According to Dutch case law, such a procedure will only be successful if the interested party makes a reasonable claim that damage has resulted from the process of decision making about the requested information or the exchange itself. If the only reason for an appeal procedure is to delay or stop a principal decision on the exchange of information, the appeal will be declared inadmissible, however 10. If one becomes aware of a request from either the Taiwanese or the Dutch tax authorities, it is advisable to ask for the assistance of a tax attorney at law or a tax advisor in both countries. In the Netherlands, it is 10 Administrative Jurisdiction Division of the Council of State 5 June 2002, ECLI:NL:RVS:2002:AE3664.

13 It takes two to tango: International exchange of information on tax matters and the protection of taxpayer s rights 013 possible to ask the Dutch tax inspector for a copy of the request for information. In this way, a tax payer can check whether the request meets the requirements described above. If the request is flawed or includes inaccuracies, these can be identified at an early stage. On this basis, the appropriate action can be taken, such as, for example, informing the Taiwanese authorities of such procedural violations or errors. However, as explained earlier, the Dutch tax inspector will not easily fulfill such a request. If the tax authorities will not provide access to a case file, there are some options that might be explored, such as a civil law suit or a procedure on the basis of privacy protection law. However, these options have not yet been crystallized. 5. Conclusions Internationally, in Europe and at a national level, eyes are focused on tax fraud, tax avoidance and tax evasion. One of the priorities in the fight against tax evasion is the easing of regulations for data exchange. Spontaneous and automatic exchange of information is the motto, but the more we talk about data, the less attention we pay to legal protections. The Netherlands is doing its part by eliminating prior notification and using a restricted definition of the secrecy clause during a WIB procedure. This makes it even more relevant for taxpayers to seek assistance in the Netherlands and in Taiwan if a request for the exchange of information is sent. This might prevent damage with respect to privacy or business secrets, especially when certain formal obliagations have not been met. Despite increasing regulations on data exchange, the agreement between Taiwan and the Netherlands is not yet adjusted in a way that it will lead to more exchange of information on different sorts of taxes. As a result, legal protection against uncontrolled data is, in both countries, still fully

14 014 葛克昌教授祝壽論文集 applicable. This leads to the conclusion that it takes two to tango: the two tax authorities have to find a balance between the exchange of information and the personal privacy or business secrecy of the taxpayer, who might be wise to contact tax advisors or tax attorneys at law in two or more countries to fully protect his rights.