Exchange of information agreements with tax havens: how will this affect the rights of non-resident taxpayers and investors?

The Organisation for Economic Cooperation and Development (OECD) appears to have been successful in convincing tax havens and countries with strict bank secrecy laws to exchange information on non-resident taxpayers, investors and businesses using their financial services. As at 18 August 2010, the OECD have confirmed that more than 320 Tax Information Exchange Agreements (TIEAs) and 150 Double Taxation Conventions that incorporate the new transparency standards have been signed between OECD member countries and non-OECD member states since 2006.1 While this situation may be good for tax administrators in the pursuit of their goal of maximising the collection of tax revenue, the main question examined in this paper is where does it leave the non-resident taxpayer and foreign investor in terms of their right to privacy and the right to maintain the confidentiality of their financial and banking details? The Australian Taxation Office (ATO) has statutory powers that provide an extensive right to access information about a taxpayer’s dealings both within Australia and overseas. ‘Operation Wickenby’, a joint operation between the ATO, the Australian Crime Commission, the Australian Federal Police and a number of government agencies is trying to detect Australian taxpayer’s operating foreign bank accounts and evading income tax through the use of tax havens.2 One of the major concerns about the exchange of information agreements is that tax authorities may be able to access information about their resident taxpayers without restriction and without the taxpayer being given the right to intervene or be consulted. This paper will commence with a brief examination of the existing rights that the domestic taxpayer possesses to maintain the confidentiality of their financial affairs, as well as the powers of the ATO to obtain information from taxpayers and third parties. The paper will then assess whether the OECD’s ‘model exchange of information agreements’ and the new Article 26 of the Double Taxation Agreements will adversely affect the rights that the taxpayer currently possesses.