Topic: Dispute Resolution in International Tax

This question concerns the application of Article 26 OECD MTC. Sub-questions (1)-(4) will allow students to demonstrate their awareness of the major conditions envisaged by Article 26 OECD MTC and apply them in various contexts.

Part 1
a) The exchange of information is governed by Article 26 OECD MTC.
b) In a nutshell, under Article 26(1) the competent authorities of the Contracting States shall exchange such information as is foreseeably relevant to secure the correct application of the provisions of the Convention or the domestic law of the Contracting States concerning taxes of every kind and description imposed in these States.
c) The reference to “foreseeably relevant” seeks to provide for exchange of information to the widest possible extent. Yet, at the same time, Contracting States may not engage in “fishing expeditions” or request information that is unlikely to be relevant to define the tax liability of a particular taxpayer. In this respect, the Commentary recommends looking for a reasonable possibility that the requested information will be relevant.
d) On the given facts, the relevance of the open-ended request for information submitted by South Africa (SA) tax authority can be questioned. SA seems to be engaging in “fishing expeditions” (in other words, has made a speculative request that has no apparent nexus to an open inquiry or investigation).

Part 2
a) This factual scenario satisfies the conditions set out by Article 26 OECD MTC. The requested information appears to be foreseeably relevant to secure the correct application of laws in Netherland
b) Even if the information about accounts opened in the name of John Walker may turn out to be immaterial, the Commentary to Article 26(1) in paragraph 5 clarifies that it does not matter whether the information (once provided) will actually prove to be relevant.
c) Therefore, a request in an ongoing investigation, where a definite assessment of the relevance can only be made upon receipt, cannot be refused. Hence, Ghana Revenue Authority is obliged to provide the requested information. This conclusion can be supported by a similar example included in paragraph 8(e) of the Commentary to Article 26(1).
d) In relation to the possibility of refusing the request on the ground that such information is held by National development Bank, Article 26(5) stipulates that a Contracting State shall not decline to supply information to a treaty partner solely because the information is held by a bank or other financial institution.
e) In effect, paragraph 5 overrides paragraph 3 of Article 26: the latter would otherwise permit a requested Contracting State to decline to supply information on the grounds of bank secrecy (paragraph 19.11 of the Commentary to Article 26(5)). Any further comments on international developments concerning transparency and/or bank secrecy will be rewarded by a higher mark.

Part C
a) According to Article 26(3)(c), paragraphs 1 and 2 of this article cannot be construed so as to impose on a Contracting State the obligation to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process. However, secrecy in this context should not be interpreted too broadly in order to make sure that the overall effectiveness of Article 26 is not undermined.
b) A Contracting State should carefully weigh whether the interests of the given taxpayer really justify the application of this provision (Commentary to Article 26(3), paragraph 19). Ghana Revenue Athority in these circumstances is given a certain discretion as to whether it should refuse the request.
c) If it does choose to supply the information, the taxpayer cannot allege an infraction of the rules of secrecy (Commentary to Article 26(3), paragraph 19).
d) As made clear by paragraph 19.2 of the Commentary to Article 26(3), in limited circumstances the disclosure of financial information might reveal a trade, business or other secrets.

Part D
As paragraph 9 of the Commentary to Article 26(1) explains, the exchange of information can happen in three ways: (i) on request, (ii) automatically and (iii) spontaneously.