Exchange of information

Wh​y is exchange of information necessary?​

The past decades have witnessed an unprecedented liberalization and globalization of national economies. An increasing number of countries have removed or limited controls on foreign investment and relaxed or eliminated foreign exchange controls. Taxpayers operate globally, while revenue administrations remain confined to their respective jurisdictions. Policy makers globally have worked tirelessly to address this imbalance through implementing programs to curtail harmful tax practices by focusing on improved transparency and co-operation between tax authorities.  ​

Countries have increasingly resorted to improved and broadened co-operation in tax matters. In a broader context, the efficient functioning of tax co-operation helps to ensure that taxpayers who have access to cross-border transactions do not also have access to greater tax evasion and avoidance possibilities than taxpayers operating only in their domestic market. Co-operation in tax matters also reflects the basic principle that participation in the global economy carries both benefits and responsibilities. The continued viability of an open world economy depends on international co-operation, including co-operation in tax matters. A key element of international co-operation in tax matters is exchange of information.

What are the benefits of an office of the competent authority in the revenue au​thority?​

The process of exchange of information generally deals with the exchange of specific taxpayer information as well as information from any other person that may possess such information.  Revenue Administrations maintain taxpayer information and have the necessary legislative powers to collect information from the taxpayer or any other person.  In countries where the Revenue Administration is largely autonomous, it will, from a legislative point, be difficult for a Ministry of Finance to manage requests for information received from partner states and requests for information made to partner states.  Therefore, the Ministry will always refer requests for information to the Revenue Administration.

How do​​​es this assist in collecting taxes?​

The process of exchange of information works in conjunction with audit, investigations and collection functions e.g. transfer pricing audits cannot function effectively without the exchange of information process.  The globalization of large organizations and wealthy taxpayers will continue unabated if an exchange of information process is not in place.   

Although statistics on exchange of information are limited, it is worth noting the successes achieved by the Australian Tax Office.  Information received from treaty partners can often provide additional evidence or confirm investigations into a taxpayer's affairs that can lead to a tax liability being raised.  The total liabilities raised that can be attributed to exchange of information activity in 2013–14 was around Australian $250 million. There were 495 exchanges of information in 2013–14; 477 under double-tax agreements, and 18 under tax information exchange agreements.

It is important to differentiate between raising assessments and collecting taxes.  The exchange of information process may only result in the amendment of an assessment; the assistance in collection agreements will allow a foreign jurisdiction to collect outstanding taxes on behalf of a revenue administration.

Wha​​t does a country need to do to achieve this? 

The successful exchange of information process is built on three pillars:  availability of information, access to information and the ability to exchange information.  The availability of information relates to a country's legal and financial framework e.g. are taxpayers compelled to maintain proper records and has bank secrecy been abolished.  The access to information relates to the legislative powers of the Competent Authority e.g. can the Competent Authority request information from taxpayers and any other persons.  The ability to exchange information looks at the day-to-day operations of the office of the Competent Authority e.g. does the office have reliable business process to ensure exchanges of information are dealt with timeously, accurately and within the framework of the international exchange of information agreements.  

Countries are required to amend legislation wherever a deficiency is identified to ensure effective exchange of information occurs.​

Cha​​llenges faced by African Countries in exchanging tax information​

Exchange of Information in tax matters has received world-wide attention since the economic meltdown in 2008 - to the extent that more than 800 agreements that provide for the exchange of information in tax matters have been signed.  Despite the increase in number of agreements, Africa only has seventeen representatives at the Global Forum on Transparency and Exchange of Information ("Global Forum").  

Revenue Authorities in Africa may, however, find exchange of information in tax matters difficult to manage due to:

  1. Insufficient legal instruments to exchange information;
  2. Insufficient domestic legislation to allow exchange of information;
  3. Inadequate policies, processes and procedures to allow for effective exchange of information; and
  4. Lack of skilled staff to manage and process exchange of information requests, within the legal instrument framework.

​With foreign direct investment increasing by 27% in 2011 – totaling​ about $80bn and expected to reach US$150bn by 2015[2], African Revenue Authorities will want to increase their efficiency on exchange of information. 

African Revenue Authorities who are able to adopt the international standards for exchange of information within the relevant legal frameworks, may see a dramatic increased interest by other territories to increase their treaty networks with African Revenue Authorities.

ATAF's ​​approach to EOI for 2015 - 2017​

Complementing the Global Forum's Africa Initiative, ATAF has prepared its EOI Programme, taking into account, the following key elements:​​

a) 3-year EOI Programme under the ATAF BEPS Programme

The G20 Working Group / OECD has identified certain Action Points as the highest priority for developing countries. Included in these is Action Point 6: Realign taxation and relevant substance to restore the intended benefits of international standards and to prevent the abuse of tax treaties. One of the outcomes of the ATAF Consultative Conference on the New Rules in the Global Tax Agenda in February 2014, was for ATAF to be a key instrument in the fight against BEPS in Africa. Building on this momentum, ATAF has developed a three year EOI Programme which will enhance the OECD's Global BEPS Agenda and will ultimately benefit ATAF members. 
 

b) Elements of the ATAF EOI Programme

The ATAF EOI Programme caters for the establishment and growth of a sustainable Competent Authority Office in each ATAF member state. In fulfilling this mission, the ATAF EOI Programme caters for the following assistance to be offered to members: 

  • The development of online EOI Training Materials;
  • The development of a customised EOI process;
  • The provision of advanced technical EOI Training;
  • The alignment of policies to legislation;
  • The provision of an assistance in the preparation of the Global Forum Peer Reviews for those ATAF members who are members of the Global Forum;
  • Assistance in the preparation for and implementation of Automatic Exchange of Information;
  • The implementation of modern and standard IT systems for EOI;
  • Assistance with the implementation of Collections as part a data analysis; and 
  • The development of EOI capability within ATAF.
  • A detailed explanation of each of these elements is contained in the Work Plan below.​

c) Sourcing of skills

The names of capable and experienced African experts have been included, and are consistently included to the ATAF Expert Database. These include internationally renowned EOI experts from, inter alia, the South African Revenue Service and the Seychelles Revenue Commission. 

d) Establish level and need

It is proposed that a concise questionnaire be developed and circulated to each ATAF member state for the purposes of conducting a country survey on exchange of information. From the results received, members will then be contacted in order to ascertain whether they are willing to be part of the Pilot Phase of the EOI Programme. Thereafter, appropriate programmes for each country will be developed in terms of:

  • Technical assistance;
  • Training; and
  • Recommendations for domestic legislative and/or policy changes.
     

e) Pilot Phase of the Programme

  • The Pilot Phase of ATAF's EOI Programme will commence in January 2015. This will kick-off with the circulation of the questionnaire to all members as to their current expertise and capability in exchange of information. From the information received, a maximum of five member countries will be approached to be part of the Pilot Phase. This phase will entail the following steps:
  • Review and assess the existing EOI process in the member country;
  • Map the EOI process;
  • Develop and implement customised processes, procedures and user manuals for EOI;
  • Develop customised templates for EOI;
  • Creating awareness in the revenue administration through training;
  • Implement a case management system; and
  • Post-implementation review of the EOI process.
  • The Pilot Phase will also take into account the existing legislation and policies applicable to EOI in the member country, the preparation for and implementation of Automatic Exchange of Information in the revenue administration, and the modernization and standardization of IT systems for EOI.​ 

The b​​enefit to ATAF members​

ATAF members will be exposed to several benefits in supporting ATAF's EOI Programme, which include:​ 

  1. The modernization and standardization of IT systems for EOI will be in line with the modernization process undertaken by most ATAF members' revenue administrations. Not only will this limit or even prevent the duplication of funding and resources, but the revenue administrations' IT network will be improved on.
  2. The upshot of the modernization and standardization of the IT systems is that enhanced taxpayer, third party information and information related to financial transactions and bonds will now be available.
  3. No additional resources will be required from the revenue administration as the expert skills and technical assistance will promptly be sourced by ATAF.
  4. Any inconsistencies between legislation and policy will be alleviated to the extent that legislation and policy will be fully aligned leading to consistent interpretation and implementation of EOI practices and procedures. ​ 
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