IN previous years, tax evasion was a problem to be solved within the limits of a nation’s jurisdiction. However, with the current trends in international trade and commerce, as well as the proliferation of advanced technologies that bring people in different nations together, tax evasion is now a dilemma to be solved between nations. Thus, the Organization for Economic Cooperation and Development (OECD) and the Council of Europe came up with “The Convention on Mutual Administrative Assistance in Tax Matters.”
This convention is a comprehensive instrument, signed by various countries or jurisdictions, seeking to curb all forms of tax evasion and avoidance through international tax cooperation among states. Through the adoption of a protocol in 2010, the amended convention was opened for signature on June 1, 2011. Recently, Internal Revenue Commissioner Kim Jacinto-Henares signed the amended convention on behalf of our government, making the Philippines the 68th signatory to it.
The amended convention’s main objective is to promote administrative assistance between states in tax matters. It comprises all mutual assistance activities in tax matters, which can be carried out by the public authorities, and is not covered by criminal law and not intended to punish criminal tax offenses. The judicial authorities of a state, therefore, cannot use the provisions of the convention for any criminal case pending before them. Thus, in the Philippines, assistance may be requested by administrative agencies, such as the Bureau of Internal Revenue, but not by the courts, such as regional trial courts or the Supreme Court, where criminal cases are pending.
The administrative assistance under the convention covers a wide range of taxes, from income taxes or taxes on profits to capital gains taxes, estate or inheritance taxes, value-added or sales taxes, excise taxes and any other tax that may be imposed by a state, except for customs duties.
Regarding such taxes, the convention provides for various forms of assistance between states who have participated therein. One form of assistance is through the exchange of information under Section 1 of the convention, which may be availed of upon the request of another state, automatically or spontaneously, even without any prior request of another state or through the furnishing of information obtained in cases of simultaneous tax examinations in different states, and obtaining information through tax representatives of one state who are present at a tax examination in another state.
State parties should exchange information that they can foreseeably determine to be relevant to: 1) the assessment and collection of tax, and the recovery and enforcement of tax claims; and 2) the prosecution before an administrative authority or the initiation of prosecution before a judicial body. If the information is not foreseeably relevant to these matters, then the convention does not allow any exchange of information. The state from whom the information is to be obtained may declare that, according to its own domestic laws, it would first inform the taxpayer concerned before any information about him or her may be divulged. However, once such foreseeably relevant information is obtained, it may be used as evidence before a criminal court, if there is prior authorization by the state supplying the information, but such prior authorization may be waived by the state parties.
Thus, through the process of exchange of information between states, Japan, for example, can request the Philippines to provide it with information regarding any ongoing tax assessment or investigation being conducted against Mr. Juan de la Cruz.
If the Philippines provides Japan with information stating that he has an ongoing tax investigation, this may then be used by Japan as evidence in any criminal case it may file against him, provided that the Philippines agrees to such use, or agrees with Japan to waive such prior authorization.
With this example, it can be seen that the implications of the process for the exchange of information between nations has far-reaching effects, which may ultimately lead to criminal liability in one state for any tax matter that may arise in another. However, as to the Philippines, the convention has yet to enter into force, since it has yet to be ratified by the Senate.
It would be interesting to see how the provisions of the convention would be enforced while ensuring that the provisions of our domestic laws are maintained and respected, specifically those relating to taxpayer’s rights. Would the Philippine government invoke a taxpayer’s right to privacy and due process when it receives such a request, or place premium on the rule of reciprocity and grant the request outright, since, under the convention, a state cannot ask for a form of assistance that it is not ready to grant to other states? This, we have yet to find out.
Atty. Esther M. Weigand
*****
The author is a junior associate of Du-Baladad and Associates Law Offices, a member-firm of the World Tax Services Alliance.
The article is for general information only, and is neither intended nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported, therefore, by a professional study or advice. For comments or questions about the article, e-mail the author at esther.weigand@bdblaw.com.ph or call 403-2001, local 340.