Benham, Miles : Isle of Man Tax Information Exchange Agreements

Contents ISLE OF MAN TAX INFORMATION EXCHANGE AGREEMENTS ……………………………………… 4 Background …………………………………………………………………………………………………………… 4 The OECD Model Agreement on Exchange of Information on Tax Matters ……………………………. 7 Article 1 (Object and Scope of the TIEA) ………………………………………………………………………. 7 Article 2 (Jurisdiction) ………………………………………………………………………………………………. 8 Article 3 (Taxes Covered) …………………………………………………………………………………………. 8 Article 4 (Definitions) ……………………………………………………………………………………………….. 8 Article 5 (Exchange of Information Upon Request) ………………………………………………………….. 9 Article 6 (Tax Examinations Abroad) ………………………………………………………………………….. 13 Article 7 (Possibility of Declining a Request) ………………………………………………………………… 14 Article 8 (Confidentiality) …………………………………………………………………………………………. 16 Article 9 (Costs) ……………………………………………………………………………………………………. 17 Article 10 (Implementation Legislation) ……………………………………………………………………….. 17 Article 11 (Language) ……………………………………………………………………………………………… 17 Article 12 (Other International Agreements or Arrangements) ……………………………………………. 17 Article 13 (Mutual Agreement Procedure) …………………………………………………………………….. 18 Article 14 (Depositary?s Functions) …………………………………………………………………………….. 18 Article 15 (Entry Into Force) ……………………………………………………………………………………… 18 Article 16 (Termination) …………………………………………………………………………………………… 18 Isle of Man Tax Information Exchange Agreements ……………………………………………………….. 19 Income Tax Act 2003 ……………………………………………………………………………………………… 20 The Income Tax Act 1970 ………………………………………………………………………………………… 22 The Isle of Man?s TIEA with the United States ………………………………………………………………. 22 Effect of the US TIEA under IOM law ………………………………………………………………………….. 23 Section 105C Power to call for documents, etc. of taxpayer ……………………………………………… 24 Section 105D Power to call for documents relating to taxpayer ………………………………………….. 24 Section 105E ………………………………………………………………………………………………………… 25 Section 105F ………………………………………………………………………………………………………… 26 S105G …………………………………………………………………………………………………………………. 27 Section 105H and Section 105I Orders ………………………………………………………………………… 28 Section 105H Orders for the delivery of taxpayer’s documents …………………………………………… 29 Section 105I Orders for the delivery of documents relating to taxpayer ………………………………… 29 Section 105M Entry with warrant to obtain material …………………………………………………………. 30 Differences between the US TIEA and the Model Agreement …………………………………………….. 30 Taxes covered by the US TIEA ………………………………………………………………………………….. 31 The Isle of Man?s TIEA with the Netherlands …………………………………………………………………. 32 Taxes covered by the Netherlands TIEA ………………………………………………………………………. 32 The Isle of Man?s TIEAs with the Nordic Countries …………………………………………………………. 33 Taxes covered by the TIEAs with the Nordic Countries ……………………………………………………. 34 The Isle of Man?s TIEA with Ireland …………………………………………………………………………….. 37 Taxes covered by the Irish TIEA ………………………………………………………………………………… 37 The Isle of Man?s TIEA with the United Kingdom ……………………………………………………………. 38 Taxes covered by the UK TIEA ………………………………………………………………………………….. 39 The Isle of Man?s TIEA with Australia ………………………………………………………………………….. 39 Taxes covered by the Australian TIEA …………………………………………………………………………. 40 The Isle of Man?s TIEA with Germany ………………………………………………………………………….. 40 Taxes covered by the German TIEA ……………………………………………………………………………. 41 The Isle of Man?s TIEA with France …………………………………………………………………………….. 41 Taxes covered by the French TIEA …………………………………………………………………………….. 42 About the author …………………………………………………………………………………………………….. 43 Disclaimer …………………………………………………………………………………………………………….. 43
ISLE OF MAN TAX INFORMATION EXCHANGE AGREEMENTSBackground While the Isle of Man is not a member of the Organisation for Economic Co-operation and Development (OECD) the United Kingdom has confirmed that the territorial application of the OECD convention extends to the Isle of Man. The OECD Convention to which all OECD members have acceded to provides at Article 1 that the aims of the OECD shall be to promote policies designed-
to achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintaining financial stability, and thus to contribute to the development of the world economy;
to contribute to sound economic expansion in Member as well as nonmember countries in the process of economic development; and
to contribute to the expansion of world trade on a multilateral, nondiscriminatory basis in accordance with international obligations.
In 1998 the OECD published a report entitled ?Harmful Tax Competition: An emerging Global Issue? (?the 1998 Report?). The 1998 Report looked into the issue of harmful tax competition and practices between OECD and non OECD jurisdictions. The 1998 Report developed criteria to identify what it considered to be the harmful aspects of a jurisdiction which could undermine the integrity and fairness of other countries tax systems. Various definitions were provided for what the 1998 Report considered to be a tax haven or a jurisdiction with a harmful preferential tax regime. The 1998 Report used the following four criteria to determine whether a jurisdiction should for the purpose of the report be classed as being a tax haven or having a harmful preferential tax regime:
No or nominal taxes in the case of tax havens and no or low effective tax rates on the relevant income in the case of preferential regimes;
Lack of effective exchange of information;
Lack of transparency; and
No substantial activities, in the case of tax havens, and ring fencing, in the case of preferential regimes.
The 1998 Report was followed by a report in June 2000 entitled “Towards Global Tax Co-Operation: Progress in Identifying and Eliminating Harmful Tax Practices (the “2000 Report?). The 2000 Report outlined the progress made by the Forum on Harmful Tax Practices and identified 47 potentially harmful preferential tax regimes in OECD Member countries and listed 35 jurisdictions that met its criteria of a tax haven. The 2000 Report proposed a process whereby a jurisdiction listed as meeting the criteria of a tax haven could commit to eliminate their harmful tax practices. A jurisdiction that made such a commitment was to be referred to as a ?committed jurisdiction?. The list of jurisdictions which met the tax haven criteria within the 2000 Report included the Isle of Man and by letter dated 13th December 2000 the Isle of Man entered into a political commitment to eliminate what the OECD considered to be its harmful tax practices. The Isle of Man commitment included addressing the issues of effective exchange of information with other tax authorities, transparency and no substantial activities. Clarification as to what the OECD mean by effective exchange of information can be found in the 2001 Progress Report of the OECD?s Project on Harmful Tax Practices. ?By committing to effective exchange of information, a jurisdiction agrees to establish a mechanism for the effective exchange of information that includes the following elements. The commitment ensures that there is a legal mechanism in place that allows information to be given to a tax authority of another country in response to a request for information that may be relevant to a specific tax inquiry. An essential element of effective exchange of information is the implementation of appropriate safeguards to ensure that the information obtained and provided is used only for the purposes for which it was sought. The adequate protection of taxpayers’ rights and the confidentiality of their tax affairs is essential to preserving the integrity and effectiveness of exchange of information programmes. The OECD Member countries have agreed to provide technical assistance to establish such safeguards and more generally, to assist in the implementation of exchange of information programmes in the jurisdictions. In the case of information requested for the investigation and prosecution of a criminal tax matter, the information should be provided without a requirement that the conduct being investigated would constitute a crime under the laws of the requested jurisdiction if it occurred in that jurisdiction. In the case of information requested in the context of a civil tax matter, the requested jurisdiction should provide information without regard to whether or not the requested jurisdiction has an interest in obtaining the information for its own domestic tax purposes. The committing jurisdiction is also asked to agree that it will have administrative practices in place so that the legal mechanism for exchange of information will function effectively and can be monitored. The committed jurisdictions have been invited to work with OECD Members to develop an exchange of information instrument that could be used to satisfy their commitments.? Upon becoming a committed jurisdiction the Isle of Man agreed to join the OECD Global Forum Working Group on Effective Exchange of Information (?the Working Group?). The Working Group consisted of representatives from OECD Member countries as well as delegates from Aruba, Bermuda, Bahrain, Cayman Islands, Cyprus, Malta, Mauritius, the Netherlands Antilles, the Seychelles and San Marino. The mandate of the Working Group was to develop a legal instrument that could be used to establish effective exchange of information. The Working Group drew up the OECD Model Agreement on Exchange of Information in Tax Matters (?the Model Agreement?) which establishes the standard of what constitutes effective exchange of information for the purpose of the OECD?s initiative on harmful tax practices. The Model Agreement is not a binding instrument and is simply intended to act as a model for bilateral exchange of information agreements. As a result modifications to the text of the Model Agreement can be agreed in bilateral agreements so as to implement the standard set by the Model Agreement.
The OECD Model Agreement on Exchange of Information on Tax Matters The Model Agreement was released in April 2002 and consists of 16 Articles along with detailed commentary to assist in the interpretation of its provisions. The Model Agreement contains both a multilateral and a bilateral version of a Tax Information Exchange Agreement (TIEA). To date the Isle of Man has only entered into bilateral TIEAs and this form of agreement will be looked at in this paper. The objective of a TIEA is to facilitate exchange of information between the parties to the TIEA so as to assist the parties in the administration and enforcement of their tax laws. The Model Agreement sets out what could be best described as a template of a TIEA that the parties can adapt to meet their specific requirements. In order to fully understand the Isle of Man TIEA?s it is necessary to look in some detail at the 16 Articles of the Model Agreement.Article 1 (Object and Scope of the TIEA) Article 1 defines the object and scope of the TIEA and provides that the parties to the TIEA will ?provide assistance through exchange of information that is foreseeably relevant to the administration and enforcement of the domestic laws? of the parties to the TIEA concerning the taxes covered by the TIEA. The use of the words ?foreseeably relevant? is important as while it is intended to provide for exchange of information in tax matters to the widest possible extent it makes it clear that the parties to a TIEA cannot engage in ?fishing expeditions? or to request information that is unlikely to be relevant to the tax affairs of a specific tax payer. The standard of foreseeable relevance is also used in the Joint Council of Europe/OECD Convention on Mutual Administrative Assistance in Tax Matters (?the OECD Convention?).
Click to download full text