OECD treaty change triggers tax concerns

A controversial tax treaty update could see wealthy cross-border investors facing random inquiries about their overseas holdings.

The Organisation of Economic Cooperation and Development (OECD) has revised the wording of article 26 of the OECD model tax convention to let tax authorities ask other countries for any financial information that is ‘foreseeable relevant’ about taxpayers.

The updated clause lets tax authorities gather information about groups of unnamed taxpayers – leaving the way open to make inquiries without firm evidence about suspected tax avoidance who may bank with the same company or invest in the same fund.

“The article is aimed at protecting taxpayers from fishing expeditions by tax authorities,” said an OECD spokesman.

“The aim is to make the transfer of information between governments easier and quicker.

“The article requires a requesting state provide detailed information about a group and specific facts and circumstances that have led to the request, including an explanation of the applicable law and why there is reason to believe the taxpayers subject of the request have not complied with the law.”

Tightening tax laws is part of a general worldwide crackdown on tax management by companies and wealthy individuals.

This intention was voiced in the Oslo Dialogue, a joint statement by OECD countries made at the OECD tax and crime conference in Norway in 2011:

“This article will facilitate exchanging tax information among law enforcement agencies to fight tax crime and other criminal activities more effectively,” said the OECD.

Most of the world’s leading economies are OECD members – the 34 states include the USA, UK, Switzerland and Luxembourg. Other countries that work with the OECD include India, Russia, China and South Africa.

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