The Organisation for Economic Cooperation and Development (OECD) has developed a process that enables certain non-OECD offshore financial centre jurisdictions to commit to eliminating harmful international tax avoidance and evasion practices. These jurisdictions can do this by committing to a program of exchange of information agreements with OECD member countries.
The OECD member countries and committed jurisdictions are collectively known as 'participating partners'. There are a number of non-OECD offshore financial centre jurisdictions committed to taxation information exchange agreements (TIEA).
The agreements aim to establish effective information exchange and improve transparency of taxpayers' financial arrangements/transactions for tax purposes. The agreements also provide important momentum to achieve the aims of the OECD's harmful tax practices initiative.
There are many financial transactions undertaken for sound commercial and legitimate tax planning reasons. However, current indications are that financial transactions made in non-OECD offshore financial centre jurisdictions are a real and ongoing risk to Australian revenue. The lack of transparency, accountability and cooperation associated with these harmful tax practice transactions support international tax avoidance and evasion.
Australia has already signed a number of TIEAs and is in advanced negotiations with a number of other offshore financial centre jurisdictions.
The TIEA outlines the obligation between Australia and the non-OECD participating partner to help each other by exchanging correct tax information relevant to the administration and enforcement of their respective domestic tax laws (civil and criminal). Information may only be provided on request - that is, a jurisdiction is not obliged to provide information it has not been asked for by the other jurisdiction.
The TIEA differs from a comprehensive international tax agreement (also known as tax treaty or double tax agreement) as it does not contain any provisions concerning the allocation of taxing rights over income.
TIEAs also differ from the exchange of information article under the traditional international tax agreements in two ways:
- TIEAs are broader than international tax agreements as they cover all taxes administered by the Commissioner of Taxation and they cover criminal and civil tax matters, and
- they are narrower in that the information exchanged can only relate to a specific investigation occurring at the time - the information exchange article under the traditional international tax agreements allows for specific, spontaneous and automatic exchange of information.
Offshore tax evasion undermines the fairness and integrity of Australia's tax system. Furthermore, in an age of globalisation, the willingness of other governments to share information is an important element in the enforcement of domestic tax laws.
TIEAs provide broad benefits for the international financial community as well as specific benefits for the relevant offshore financial jurisdiction and Australia.
At an international level, TIEAs will:
- maintain higher standards for the collection of taxpayer and accounting information, promoting transparency and good governance
- increase financial sector stability as well as combating criminal activity
- enhance the jurisdiction's reputation as a legitimate offshore financial centre, and
- assist integration of the offshore financial centre jurisdiction into the international financial system and global community.
For Australia, TIEAs will:
- protect Australia's revenue base by providing access to necessary offshore information and improving the integrity of the tax system
- protect compliant businesses and individuals from unfair tax competition from those who evade their tax obligations, and
- provide an important deterrent to taxpayers considering entering into offshore arrangements to avoid or evade tax.
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Proposed measures
The government is continually reviewing international tax arrangements. For information on how potential international legislative changes may affect you, see New legislation.
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Last Modified: Friday, 14 August 2009