Council of Europe/OECD-Convention: New TJN briefing paper

When the G20 signed the Convention on Mutual Administrative Assistance in Tax Matters in November 2011, amid great fanfare, the OECD, a club of wealthy countries, set out to promote it as the ‘gold standard’ of international tax cooperation. As is often the case (see here or here), the OECD’s viewpoint is not quite the full story. While the Convention definitely provides various positive things — most importantly a tacit assertion that automatic information exchange must be part of effective information exchange — it also includes clear downsides.

Taken together, our fresh analysis provides no clear black or white recommendation to any interested party as to whether or not it is a good idea to push for and ratify this Convention.

The introduction notes:

4. The Convention embodies various legal improvements over Tax Information Exchange Agreements (TIEAs). Its multilateral nature is an important improvement over the bilateral processes that dominate the field of cross-border information exchange. It is also much broader than TIEAs: it provides differing mechanisms for exchanging information (‘on request’, ‘spontaneous’ and ‘automatic’ information exchange) and allows for joint tax audits of multinational corporations. This may be particularly useful for developing countries struggling to untangle complex multi-jurisdictional tax structures.

5. The Convention nonetheless has major weaknesses: secrecy jurisdictions face little or no incentive to adhere to it, and it is unclear whether the Convention will require secrecy jurisdictions to obtain the information that needs to be exchanged. Current signatories (let alone those that have actually ratified it; see Annex A) exclude secrecy jurisdictions such as Switzerland, Luxembourg and the Cayman Islands. In addition, there are no mechanisms for assessing how well the Convention is performing in practice*, and consequently no evidence as to how well it performs.

These risks are particularly relevant for developing countries deciding whether to commit scarce resources to it. Furthermore, unlike recent guidance issued by the UN, there is no provision to allow wealthier countries to bear more of the costs involved in complying with the Convention. The Convention also fails to refer to the UN as an appropriate forum for advancing international tax cooperation and instead jealously guards this role for the OECD and for parties to the Convention.