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

Source:Taxmann.com

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.

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.

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