Professional trust advisors highlight ricks of abuse under international tax agreements

News - Tax

Written by Ray Clancy

Friday, 06 August 2010 09:22

There is a worrying lack of basic measures to protect taxpayers from abuse when governments exchange tax data, according to a new report.

Tax and Information Exchange Agreements (TIEAs) are growing under an initiative from the Organisation for Economic Co-operation and Development (OECD) to stamp out tax havens and it is estimated that over 300 have been signed.

But a study by the Society of Trust and Estate Practitioners (STEP), the worldwide professional body for those advising families on trust and estate planning, highlights the increasing risk that, as the TIEA network grows, countries with poor human rights records and weak data security will gain access to detailed personal financial data on individuals.

This could leave law abiding taxpayers and their families vulnerable to issues such as threats from criminal gangs who have gained access to tax data,’ it says.

‘TIEAs so far have been agreed between major economies, such as the UK, and other well run countries. There is now strong political pressure to expand the list of countries accessing tax data via TIEAs, bringing in countries where it is harder to be confident that personal tax data will be secure,’ said David Harvey, STEP chief executive.

‘It is very worrying, therefore, that so far there are no clear plans to ensure minimum standards are in place to protect the public. It seems extraordinary, for example, that the current OECD review process for TIEAs only looks at a country’s performance in providing tax data. There is no check whatsoever to ensure countries receiving data on taxpayers’ financial affairs protect that data and respect personal confidentiality,’ he added.

As an example of how things might go wrong when detailed personal information is shared with other governments, the report highlights a recent court case in the UK where the Zimbabwean authorities seized US$300 million of assets after they became aware that the UK was making anti money laundering checks on a large, but legitimate, transaction for someone based in Zimbabwe.

STEP has proposed a set of minimum standards that countries must meet before getting access to tax data from other countries, including minimum standards of good governance, basic data protection measures and a right of redress for taxpayers if things go wrong.

It recommends that only countries meeting agreed minimum standards on objective measures of quality of national governance, such as those provided by the World Bank data, should be permitted to have access to personal data on individuals from other jurisdictions and calls for clear mechanisms to be put in place to ensure that only relevant and necessary data are exchanged.

It also says that requests for data should be assessed by a public judicial authority, in line with the current EU legal framework for data protection and measures should be put in place to ensure that the legitimate rights of individuals are made explicit and effectively enforceable if data exchanged under TIEAs is abused.

While the report notes that relatively few TIEAs have been signed with countries with poor governance records, practitioners and savers have expressed concern that political expediency could change the current largely tacit policy of sharing information only with trusted partners.

‘As the pressure to widen the OECD framework grows it is likely that large, powerful economies with poor governance records will begin to demand access to current tax information sharing arrangements. In the absence of explicit protections, real politik on the part of the major democracies may result in them getting such access,’ the report says.