By Sound Article 5(2) OECD Model Agreement where information held by a Contracting State is not sufficient to provide the information requested by the second contracting State, the State providing this information, is required to collect any information it may obtain in accordance with its national law in order to provide the requested information second the state of information, even if it does not need this information for its own tax purposes.
According to the provisions Article 5(4) The OECD Model Agreement requires the exchange of information not only concerning information held or obtainable by contracting authorities (territories), but also information held by banks, other financial institutions and any person acting as an agent or trustee, as well as information concerning the ownership of companies, companies, funds, foundations and other persons.
The above provisions therefore give rise to a wide range of information exchange and, moreover, include information held by agents and trustees.
Theoretically, the above provisions could therefore be the basis for obtaining information on multinational companies incorporated in countries (territory) which have concluded a bilateral agreement with the requesting State, modelled on the OECD Model Agreement.
This information could therefore include the ownership and management structure of these companies, including the real beneficiary data.
However, this wide range of information exchange is offset by the limitations resulting from the internal legislation of the Contracting States (territories) which must permit the transmission of such information to other (contracting) countries.
According to the provisions Article 2 The OECD Model Contracting State is not obliged to provide information which is neither held by its authorities nor held or controlled by persons under its territorial jurisdiction.
According to the provisions Article 5(3) The OECD Model Contracting State is required to grant second to a Contracting State the requested information on the extent acceptable under the provisions of its national law.
In turn, according to the provisions Article 7(1) The OECD Model Agreement, the Contracting State, shall have the right to refuse to provide the requested information if it is not available under its national law.
These regulations, referring directly to the national law of offshore jurisdiction, give them the opportunity to shape their internal legislation so that any real exchange of information concerning international companies incorporated in their territories cannot take place.
If the national law of a Contracting State (territory) limits the scope of information that may be obtained by the national authorities of that State (territory) and transferred to the competent authorities of another Contracting State, these restrictions are also applicable under the OECD Model Agreement and bilateral tax exchange agreements concluded on its basis.
In addition, according to regulation Article 7(1-4) The OECD Model Contracting States (territories) are not obliged to:
- the provision of information constituting any commercial, economic, industrial or professional secret or any form of activity of the undertaking, provided that information falling within the scope of the contract is not treated as such,
- to obtain and provide information which discloses confidential information in relation to the client and the lawyer, counsel or other legally authorised representative, where such information has been produced for the purpose of seeking or providing legal advice or produced for use in existing or considered proceedings,
- the provision of information when an application for such information has been made contrary to the contract,
- providing information where disclosure of the requested information would be contrary to public policy.
Notwithstanding the above restrictions, the mere occurrence by one requesting State must be preceded by compliance with certain formal conditions. In accordance with the provisions Article 5(5) The OECD Model Agreement should include in the application:
- • identification information,
- • the conditions indicating that the requested information is in the possession of the requested State or that it is owned or controlled by a person under its jurisdiction,
- a statement that this request is in accordance with the law and administrative practice of the requesting State and that, if the requested information were in the possession of the requesting State, the competent authority of that State could obtain that information under its administrative law and practice,
- a statement that the requesting State has used all the means available in its territory to obtain the requested information, except those which would create disproportionate difficulties.
However, according to the wording Article 5(6) The OECD Model Agreement requires the relevant contracting authorities to provide themselves with the information requested under the OECD Model Agreement as soon as possible. In order to ensure a rapid response, the competent authorities of the Contracting States shall:
- confirm in writing receipt of a request for information and notify the relevant authority of the Contracting State which requested that information of any deficiencies in the request within the time limit 60 days from the date of receipt of this request,
- if the Contracting State cannot obtain and provide the requested information within the time limit 90 the days from the date of receipt of the request, including where the provision of the requested information faces an obstacle or where the Contracting State refuses to provide that information, it shall immediately inform the latter second the contracting State which requested that information, indicating the reasons for this inability and the nature of the obstacles or reasons for refusing to comply with that request.
According to the wording of the regulation Article 6(1) The OECD Model Contracting State (territory) may allow the relevant authorities second the contracting State to enter its territory for the purpose of hearing persons and recording, after obtaining written consent from the persons concerned.
This regulation does not therefore impose on States (territories) applying harmful tax competition the obligation to consent to the participation of representatives of the tax administration second the contracting State in the above activities. The practical importance of this regulation is therefore marginal.
Tax havens are reluctant to give up their attributes for their current international position. one of these attributes, there is still a specific information embargo on the exchange of information and legal assistance with other countries.
Furthermore, it should be pointed out that, in order for a provision to be made Article 6(1) The OECD Model Agreement has found practical application, and the persons whose activities referred to in that provision must give written consent to it, which cannot reasonably be expected.
Otherwise, the Contracting State (territory) will do the same and the information obtained in its course will transmit to the relevant authority second A contracting country.
At this point, particular attention should be paid to the mode under local law of offshore jurisdiction, but also to a number of other countries applying specific tax preferences, obtain the information requested by other countries.
This applies not only to bilateral agreements concluded under the OECD Model Agreement but also to double taxation agreements.
After receiving a request from another Contracting State, those jurisdictions shall forward the questions received to the entity(s) concerned and subsequently to the replies received and copies of the relevant documents as their own replies and documents obtained by them to the relevant authorities of the State - the applicant.
In this way, the Polish tax authorities, like the tax authorities of other countries, receive, under the arrangements provided for in agreements modelled on the OECD Model Agreement and sometimes also under the arrangements laid down in double taxation agreements, information provided de facto by entities (companies) whose activities are the subject of the application and only technically provided by tax authorities second the contracting State (territory).
Moreover, these entities, knowing the scope and content of the questions covered by the proposal, providing answers which are not subject to verification by the local fiscus, have a real impact on the outcome of tax proceedings conducted in other countries, including Poland.
The above status quo is one of many evidence of the negative consequences of the lack of correlation of international tax agreements with the national law of the Contracting States (territories).
International tax agreements are concluded without taking into account the impact of the national law of the Contracting States (territory) on the scope of application first the above mentioned agreements.
In the case of double taxation agreements, this often leads to double non-taxation of a particular category of income, and in the case of tax exchange agreements, this results in far-reaching restrictions on contractual cooperation between contracting parties.
It is noteworthy that the vast majority of tax haven't changed their internal legislation with the start of bilateral agreements modeled on the OECD Model Agreement.
Before, sometimes even for years 30-those 20th century jurisdictions did not have any internal rules to obtain information on the actual beneficiaries of international companies located in their territories, held by those companies bank accounts, transactions or directions of financial flows.
By virtue of this restriction by States (territories) applying harmful tax competition of their power to international companies incorporated in their territories, these jurisdictions eliminate the unfavourable provisions of tax exchange agreements to which they are party.
As a result, tax information exchange agreements concluded with countries (territories) applying harmful tax competition only have little function. Only a few offshore jurisdictions have introduced regulations on international companies in their domestic national law, in particular the requirement to keep even a simplified accounting.
The absence of such obligations is tantamount to an effective lack of international cooperation from a given jurisdiction.
Since a State (territory) having offshore jurisdiction status is not able to obtain any data on international companies incorporated in its territory, these restrictions apply in the interstate relations of that State (territory).
In conclusion, as long as tax havens do not introduce documentary and registration obligations in their internal legislation consistent with the standards adopted in the Western European and North American countries, international cooperation in the exchange of information and legal assistance with these jurisdictions will not function effectively.
Restrictions resulting from the provisions Article 5(3) and Article 7(1) The OECD Model Agreement, and consequently bilateral agreements concluded on the basis of it, make the nature and scope of interstate cooperation with countries (territories) applying harmful tax competition inadequate to the international community's intentions and does not allow for the efficient collection of information for tax purposes from these territories.
Furthermore, offshore companies are not in the vast majority of international tax avoidance structures used in a direct relationship with the Polish unit. Most often, between the Polish company and the offshore company, the unit from one of the Member States of the European Union with an Anglo-Saxon legal system.
The intermediate company has, in principle, a full trust structure, so that the actual links between the Polish unit and the intermediary and offshore company are impossible to determine by the Polish tax authorities.
As a result, the authorities of the Polish tax office have no legal basis to request information on the relationship and trade between the intermediary company and the offshore company, as this information does not concern the Polish taxpayer or the actual turnover, and the actual links cannot be established.
All the more practical application of agreements on the exchange of information in tax matters, modelled on the OECD Model Agreement, is marginal.source: "International tax avoidance and its regulations in Polish law" Difin SA