TIEAs Unworkable in Tackling Tax Evasion, Fraud and Criminality.

(Cayman Islands-Australia TIEA signing; Image:IslandJournal)

Of course you already know this but for a recent illustration please read on.

The Tax Information Exchange Agreement (TIEA) between the Cayman Islands and Australia is not retrospective and only applies  to tax periods beginning on July 1, 2010 going forward. This is understandable of course because not only would it be against the spirit of international treaties it would be unfair to taxpayers in both countries.

International tax co-operation based on newly forged treaty relations, and absent a culture of information sharing is largely a forward-looking exercise.

The majority of the eight hundred (800) OECD-styled TIEAs now in place are of very recent vintage, with most, less than four years old. Little wonder therefore that they are useless in providing confidential tax payer information ‘on request’ for tax periods prior to the date to which the TIEA applies.

Despite the frenzied TIEA activity by most members of the OECD Global Forum on Transparency and Exchange of Information for tax Purposes over the last four years, largely fueled by threat of economic sanction by the world’s wealthiest countries,  few cover tax periods before 2010.

Indeed, this is precisely the case with the Cayman Islands-Australia TIEA and why according to Professor Miranda Stewart, of the Melbourne Law School, the OECD is reviewing whether the domestic laws of TIEA signatories are impeding information exchange.

A Quick Aside

That the OECD would attempt to cast judgement on the domestic laws of a TIEA-signatory and in the process supplant the lawful rulings of the judiciary in either party is another matter which deserves separate consideration in another post.

Suffice it say however that, like all treaties TIEA interpretation is a matter left to the parties to the agreement and the Vienna Convention on the Law of Treaties. Aside from the ready availability of the G-20 as its enforcement arm one cannot imagine how the OECD could assert any jurisdiction over an international contract to which it is not a party.

Back to the case.

Justice Charles Quin of the Cayman Islands Grand Court recently ruled that it was illegal for the Cayman Islands Tax Information Authority to hand over documents about two companies registered in the islands to the Australian Tax Office (ATO). The Cayman Justice decided that the tax authourity was barred from doing this even though the companies – MH Investments and JA Investments – are linked to Australian businessman Vanda Gould who has been charged with tax and money-laundering.

What’s the problem?

The TIEA only applies to tax periods beginning on July 01, 2010, but the case against the two Cayman Islands companies relates to the years from 2000 to 2007.

Interestingly however, this ruling did not prevent Australian Judge Nye Perram from allowing the documents unlawfully obtained by the ATO for use in its USD40m Federal Court case despite a request by Justice Quinn that the documents be returned or destroyed.

A Question of Workablity

Now fresh questions have been raised about the utility of perfectly sound legal instruments which are based on a well established rule of international tax treaty law that treaty obligations between countries apply from the date agreed to by the parties.

The fact that building a case involving the proving of tax fraud, evasion or other criminality may require access to tax information several years predating the agreement and involving companies connected to the principal defendant does not, as a matter of law, call into question the validity of the instrument.

That TIEAs may be unhelpful in some, or perhaps even in the majority of cases involving tax malfeasance before 2009, is not a mark against these agreements or the bona fides of the signatories thereto.

Rather it  merely illustrates the point that international tax co-operation is a relationship between tax authourities which does not begin or end with the inking of a model agreement.

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