Tax Administration: IRS's Information Exchanges with Other Countries Could Be Improved through Better Performance Information
Released: 2011-10-07T00:00:00

Letter

Background

International agreements, such as income tax treaties, permit the United States and other countries to provide information to each other for tax administration and enforcement purposes through a process referred to as exchange of information or information exchange. Information may be shared upon request or without a preceding request.

The information shared between countries can cover a range of documents and sources, and can occur in a variety of formats. Exchanges include responses to narrowly tailored requests for documents related to a specific taxpayer, as well as records for thousands of taxpayers. Exchanges are not limited to tax returns and other tax system-specific information; other sources can involve public records, information from securities brokers, and real-estate information. Exchanges are also defined to include broad-based discussions of policy and administration between tax authorities. According to the Joint Committee on Taxation (JCT), there were nearly 2.5 million disclosures of tax returns or return information to foreign countries under tax treaty disclosure authority in 2010. The total number of disclosures may be greater than the number of taxpayers involved, as the same taxpayer may be the subject of more than one information exchange.

Legal Framework of Exchange of Information

Tax treaties, Tax Information Exchange Agreements (TIEA), and Mutual Legal Assistance Treaties (MLAT) provide U.S. officials working on tax matters the authority to exchange information with authorities in other countries. Generally, these agreements contain exchange of information provisions that have been agreed upon by the United States and one other country or jurisdiction; that is, they are bilateral. While U.S. domestic law or international law does not prevent countries from providing the United States with otherwise unprotected information, such exchanges typically do not occur outside the bounds of these agreements.

Tax treaty provisions cover a wide range of tax issues but have two primary purposes; (1) avoiding double taxation and (2) enforcing the domestic tax laws of treaty partners. All but one tax treaty between the United States and other countries contains provisions that authorize exchange of information. According to officials at the Department of the Treasury, U.S. officials generally rely on a model income tax treaty to identify the terms and provisions that the United States would like to incorporate into its agreements with other countries. The U.S. Model Income Tax Convention of 2006 is the most recently published model treaty that U.S. officials rely on to negotiate tax treaty provisions, and includes Article 26 concerning information exchange. The Department of State serves as an advisor to the Department of the Treasury, which develops and negotiates tax treaties and other international agreements related to tax matters.

Although model treaties are the starting point for U.S. negotiations with other countries, officials we spoke to noted that the terms and conditions of tax treaties, like other international agreements, are the product of negotiations between the countries involved. Specific agreements vary in the terms or provisions governing exchange of information between the United States and individual treaty partners, and, as discussed later in this report, these variations can have meaningful effects on the exchange of information process. When seeking approval for a treaty, including tax treaties, the Secretary of State formally submits the proposed treaty to the President of the United States for transmittal to the United States Senate. Following advice and consent of the United States Senate, the President of the United States signs the treaty, and directs the Secretary of State to take the actions necessary for the treaty to enter into force. After both countries have complied with the entry-into-force provisions of the treaty, it becomes binding under international law.

TIEAs also authorize exchange of information between the United States and other countries for tax purposes. Like tax treaties, the provisions contained in TIEAs must be agreed upon by all parties to the agreement, and the terms and conditions governing exchange of information between the United States and other countries may differ from agreement to agreement. Unlike treaties, however, TIEAs are executive agreements that are signed by the President of the United States and do not require the advice and consent of the United States Senate. Also, while tax treaties cover a broad array of tax matters including exchange of information, the sole purpose of a TIEA is to facilitate the exchange of information. As with tax treaties, TIEAs become binding under international law once both countries have complied with the entry-into- force provisions.

MLATs create a routine channel for obtaining a broad range of legal assistance for criminal matters. Like tax treaties, MLATs are treaties that require the advice and consent of the Senate. MLATs are negotiated by the DOJ in cooperation with the Department of State. Unlike the information obtained through tax treaties and TIEAs, which authorize the exchange of information for tax purposes, MLATs authorize the exchange of information for criminal matters, which can include criminal tax matters.

Information shared through exchange of information and information about such exchanges is confidential and protected by domestic laws and provisions contained in tax treaties and other such agreements. The Internal Revenue Code (IRC) protects information exchanged under tax treaties and other relevant agreements from disclosure in the same manner as information obtained under domestic laws except in specific circumstances, such as to courts and administrative bodies. The identity of taxpayers, information about those taxpayers, and the identity of the countries involved in the exchange of information are protected from public disclosure.

Tax treaties, TIEAs, and MLATs require that both the United States and its treaty partners designate and authorize an entity within their respective governments to interpret agreement provisions and disclose information. Tax treaties and TIEAs commonly refer to these entities as “competent authorities” or “taxation authorities,” while MLATs refer to these entities as “central authorities” or “competent authorities.” For information exchanges under tax treaties and TIEAs, the Secretary of the Treasury is the competent authority. For administrative purposes, the authority to exchange information with other tax authorities has been delegated to the IRS Deputy Commissioner (International), Large Business and International Division.

All exchanges of information under an agreement involving the United States must occur through formal channels established between the United States and treaty partner competent or central authorities. Exchanges that occur within these formal channels restrict the disclosure of tax information. Also, some foreign governments may restrict foreign tax authorities from conducting investigative activities within their borders.

Specific exchanges of information are those in which information is provided by one jurisdiction after it is requested by a partner jurisdiction in the context of a specific audit or investigation. From the U.S. perspective, requests for specific exchange of information are incoming or outgoing. When a treaty partner submits a request for specific exchange of information to the United States, these foreign initiated requests are called incoming requests for specific exchange of information. Conversely, when the United States initiates a request for specific exchange of information, that request is referred to as an outgoing request for specific exchange of information.

Treaty partners may also exchange information with one another without a request. For example, tax administration officials may come across information about a taxpayer that officials believe could be of interest to tax administration and compliance officials in another country. The competent authority may then send this information to the treaty partner’s competent authority through what is referred to as a spontaneous exchange of information.

Treaty partners may also exchange information with one another on a regular or routine basis, through what is referred to as an automatic exchange of information. Such exchanges typically involve the voluntary exchange of information on multiple taxpayers, and cumulatively can include millions of records. For example, a country may routinely provide information on domestic dividends paid to foreign citizens. Automatic exchanges of information are similar to spontaneous exchanges because they are not associated with a formal, one-time written request for information on a specific taxpayer or taxpayers.

The United States also exchanges information with treaty partners through the Simultaneous Examination Program (SEP) and Simultaneous Criminal Investigation Program (SCIP). SEP/SCIP is used in situations where the United States and a treaty partner have common issues concerning the examination or investigation of a taxpayer or related taxpayers. Officials meet to discuss audit plans, information requirements, and other issues related to the examination or investigation. Treaties also allow broad-based discussions on matters such as tax administration trends, operating practices, and tax matters related to particular economic sectors. In the United States, these exchanges are referred to as industrywide exchanges of information. According to IRS officials, industrywide exchanges are rare and do not involve sharing information about specific taxpayers.

While the provisions of most tax treaties and relevant agreements are broad enough to permit the exchanges of information previously described, specific exchanges of information are the only type of exchanges that the United States and its treaty partners are obligated or required to do under the terms of these agreements. Therefore, the administrative processes and much of the data presented in later sections of this report will focus on the activity occurring through specific exchanges of information.

Administrative Procedures for Processing Specific Exchanges of Information

All administrative activities associated with processing incoming and outgoing requests for specific exchanges of information are handled by IRS Tax Attachés or EOI/OO staff located in one of the agency’s civilian posts of duty or in Washington, D.C. IRS has four overseas posts of duty located in Europe and Asia and one domestic duty post in Plantation, Florida. Each foreign duty post is headed by a Tax Attaché and the domestic post is headed by a Revenue Service Representative (RSR). Tax Attachés, RSRs, and EOI/OO headquarters staff are responsible for ensuring that the incoming and outgoing requests pertaining to their designated jurisdictions meet agreement standards and are processed in a timely manner. Requests for information involving Australia, Canada, France, Japan, and New Zealand are processed through EOI/OO in Washington, D.C.

Incoming requests for information are assessed by the relevant Tax Attaché, RSR, or headquarters staff to ensure that they comport with the agreement in place with the country and with U.S. laws. All incoming requests must specifically include (1) the identity of the taxpayer about whom the information is being requested, (2) an itemized list of all the information requested, (3) a detailed explanation of relevance of the information requested and the taxpayer and issue being examined, and (4) an explanation of how the information that is being requested relates to the taxes or liabilities covered by the agreement authorizing the exchange. To ensure that these requirements are met, IRS personnel are required to complete a checklist for each incoming request for information. IRS officials stated that they do not fulfill requests for information they deem to be inadequately supported, and will frequently ask the relevant treaty partner to provide additional details to support the request. Incoming requests that meet the specified standards are typically forwarded to other business operating divisions within the IRS, which then assign the request to appropriate examiners or revenue agents to obtain the information. The information obtained to meet the request, or a determination that the requested information is not obtainable, is passed back to EOI/OO staff that then send the response to the requesting jurisdiction.

A similar IRS process is used for U.S.-initiated, outgoing requests for information. EOI/OO receives requests for information from IRS or DOJ field staff, and passes the requests along to Tax Attaché, RSR, or EOI/OO staff. The staff evaluate the request to ensure that it includes all of the information that the treaty partner will need, including   general case information to establish that a tax examination or the name and address of the taxpayer under examination or investigation, when it is known; the type of tax and tax years (whether calendar or fiscal) involved; investigation is being conducted; the location of the information and an explanation as to why the information is believed to be in the country from which the information is being requested; the specific information needed and how the information is relevant to the investigation; the date by which the information is needed (can include statute of limitations or court dates); and  whether certified copies of the documents are required.

Although the international examiner, revenue agent, revenue officer, investigator, or attorney in charge of the original examination or investigation summarizes these details using a template developed by EOI/OO, the formal written request is prepared and transmitted to the treaty partner by the Tax Attaché, RSR, or EOI/OO staff assigned to the request.

An interactive graphic illustrating the administrative process for incoming and outgoing specific exchanges of information is shown in figure 1. Process details can also be found in appendix III.

EOI/OO procedures require that the Tax Attaché, RSR, or EOI/OO staff responsible for processing the outgoing request provide status updates to the person requesting the information every 60 days. After the information has been secured, the response is reviewed by the Tax Attaché, RSR, or EOI/OO staff responsible for processing the request and forwarded to the requester. When a treaty partner supplies only part of the information requested, the IRS official responsible for processing the request follows up with the treaty partner until all information requested has been secured, or until all attempts by the treaty partner to secure the information have been exhausted and it is determined that the information does not exist or cannot be obtained from the country. The Tax Attaché, RSR, or EOI/OO staff working the case will forward information to the requester as it is received.

Agreements That Authorize Exchange of Information between the United States and its Treaty Partners Differ in Content and Application

The United States Has 143 Information Exchange Agreements with 90 Treaty Partners

As of April 30, 2011, the United States had 143 bilateral agreements authorizing exchange of information with 90 treaty partners. These agreements include 58 tax treaties, 27 TIEAs, 49 MLATs plus 7 partial MLATs, and 2 MLAAs in force between the United States and foreign jurisdictions. Another 12 instruments (7 tax treaties, 2 TIEAs, and 3 MLATs), all incorporating tax information exchange, were signed but were not in force as of that date. See appendix IV for a list of all income tax treaties, TIEAs, and MLATs in force as of April 30, 2011. Agreements signed but not in force are also listed in appendix IV.

Of the 90 treaty partners, 7 were located in the Africa and Middle East regions, 12 in the Americas region, 18 in the Asia-Pacific region, 16 in the Caribbean region, and 37 in the Europe region. See figure 2 for an interactive graphic showing the different agreements that the United States has with its foreign partners, including a map for each agreement type.

The number of bilateral instruments involving the United States does not match the number of tax information exchange relationships the United States has with foreign partners. For example, the United States has an MLAT with Uruguay, but that MLAT does not allow for assistance related to tax offenses unless they pertain to other crimes. Since the United States has no other instrument with Uruguay, tax information is not exchanged with that country except if the tax offense relates to the concealment of income obtained from another crime covered by the treaty. Therefore, Uruguay is not counted as an exchange partner. At the same time, multiple partners may be signatories to a single instrument. For example, the United States has an MLAT with four countries of the Eastern Caribbean States Organization, which provides a basis for its tax information exchange relationships with Antigua and Barbuda, Dominica, Grenada, and St. Lucia.

The terms of an agreement may specifically include or exclude an associated territory. For example, the U.S.-Australia income tax treaty includes Australia’s territories of Norfolk Island, Christmas Island, Cocos (Keeling) Islands, Ashmore and Cartier Islands, and the Coral Sea Islands, while the U.S.-Denmark income tax treaty terms exclude the Faroe Islands and Greenland. A territory may also be included in one agreement and excluded in another. For example, the U.S.-United Kingdom MLAT extends to the Isle of Man (a dependency of the British Crown), but the territory is excluded from U.S.-United Kingdom income tax treaty. Since the United States also has a unique TIEA with the Isle of Man, it is counted as a separate foreign treaty partner.

Tax information exchange relationships may be created by a single instrument or by multiple instruments of different types. Figure 3 shows the numbers of foreign treaty partners with which the United States has different combinations of agreements.

All U.S. tax treaties (with information exchange provisions) and TIEAs currently in force obligate the United States and its treaty partners to exchange certain information upon request. In general, the text of tax treaties and TIEAs is written broadly, allowing for specific, automatic, and spontaneous tax information exchanges. Treasury Department officials told us that the starting point for new agreements and renegotiations is generally the most recent U.S. Model Tax Convention in use by the United States. Department of the Treasury officials also noted that the policies embodied in the most recent Model Tax Convention may evolve after the publication of the document, therefore changes in policy may not be documented until the publication of an updated model convention. The language of particular agreements and the terms governing each bilateral relationship can vary significantly from agreement to agreement, depending on when the agreement was negotiated and what the two countries agree to.

Tax treaties with information exchange articles and TIEAs create, at a minimum, the obligation for exchange partners to respond to permitted requests for information. Fifty-eight treaties and 12 TIEAs explicitly describe a standard for the relevance or necessity of the information allowed to be requested. The standard found in the 2006 U.S. Model Tax Convention is that information that “may be relevant for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes of every kind” is to be exchanged upon request, which mirrors the statutory standard governing IRS’s authority to access records in a domestic context. Some agreements use a variation of the standard, however, such as “foreseeably relevant,” “as is necessary,” “as is relevant,” or “as is pertinent.” The “may be relevant” standard and the “forseeably relevant” standard—regarded as equivalent by the U.S. government—are considered a lower bar than some other standards.

The 2006 U.S. Model Tax Convention technical explanation cites a U.S. Supreme Court case and states that the “may be” language “would not support a request in which a Contracting State simply asked for information regarding all bank accounts maintained by residents of that Contracting State in the other Contracting State, or even all accounts maintained by its residents with respect to a particular bank.” This means that, as a general rule, the United States does not make requests or respond to requests under these agreements where the names or other identifier (such as an account number) of potentially noncompliant persons are unknown. The information exchange provisions of TIEAs and bilateral tax treaties concluded by the United States require that a request for information satisfy a standard of relevance in order to be considered a valid request under the agreement. One of the requirements of the relevance standard is that requests contain “the identity of the person(s) under examination or investigation.” During interviews, officials of the IRS and Treasury Department explained that the recent global recognition of the importance of full exchange of information for tax purposes has led countries to refine information exchange practices to ensure that exchange will occur to the widest appropriate extent, and that these topics are under active discussion at international standard-setting bodies such as the Organisation for Economic Co-operation and Development (OECD) and the Global Forum on Transparency and Exchange of Information that focuses on exchange of information issues. Accordingly, a valid request for information will not always require the name of particular taxpayers under examination or investigation. In addition, the Treasury Department’s Technical Explanation of the 2009 protocol amending the 1996 bilateral tax treaty with Switzerland states the following: “In a typical case, information sufficient to identify the person under examination or investigation would include a name, and to the extent known, an address, account number or similar identifying information.” Moreover, IRS and Treasury Department officials explained that the template TIEA text used by the United States was changed in January 2011 to state that a request for information must contain “the identity of the person or ascertainable group or category of persons under examination or investigation.” It is mutually understood that there can be circumstances in which there is information sufficient to identify the person under examination or investigation even though the requesting state cannot provide a name. At the time that this study was conducted, however, the Internal Revenue Manual had not been correspondingly updated to reflect this clearer articulation of policy.

Some arrangements contain provisions that outline particular types of information-gathering measures beyond specific exchanges upon request. For example, the U.S.–Austria treaty explicitly states that “states shall spontaneously or upon request exchange information” and that “states may agree on information to be furnished on a regular basis.” Several other tax treaties state that exchange of information shall be on a “routine basis” or “upon request” with reference to particular cases. Several TIEAs specifically provide for automatic and spontaneous exchange of information in addition to providing information upon request. The presence of automatic or spontaneous exchange language in an agreement does not mean such exchanges necessarily happen, and the absence of such language does not mean automatic or spontaneous exchanges do not occur, as treaties and TIEAs are generally broad enough to permit such types of exchange.

Certain limits to specific information exchange are common to most tax treaties and TIEAs. Specifically, countries are not obligated to carry out administrative measures at variance with the laws and administrative practice of either contracting state (47 out of 67 tax treaties and 24 out of 27 TIEAs); supply information that contracting states would not be able to obtain under their own laws (51 out of 67 tax treaties and 26 out of 27 TIEAs); or  provide information that would disclose trade, business, industrial, commercial, or professional secret or trade-process or information that would be contrary to public policy of either contracting state (46 out of 67 tax treaties and 26 out of 27 TIEAs).

Additionally, all tax treaties with information exchange articles and all TIEAs contain disclosure provisions that protect the confidentiality of the information exchanged. Forty tax treaties and 12 TIEAs also state that an exchange partner may not decline a request simply because it may not need that information for its own purposes. These agreements also contain provisions that obligate the requested state to use its information- gathering measures to obtain the requested information even though it may not need that information for its own purposes.

While tax treaties and TIEAs share many common principles, many also contain unique features. For example, information exchange arrangements can cover different types of tax information. Twenty-seven tax treaties permit exchange of information in any case concerning U.S. federal taxes, 21 limit information exchange to cases concerning taxes described under the general scope of the convention, and 10 limit exchange to cases concerning specific taxes or apply other restrictions. All U.S. TIEAs cover exchanges on all U.S. federal taxes, although most specifically state that they do not cover state and local taxes or taxes levied by political subdivisions. Eighteen treaties and 23 TIEAs also expressly provide that an exchange partner cannot decline to share information because it is held by a bank or other financial institution, though the absence of such a provision does not mean that a treaty partner will decline to share such information. Five treaties specify that the requested state will allow representatives to interview individuals and examine evidence in the requested state, while 18 TIEAs include provisions to this effect. Two treaties—with Canada and the Netherlands—have provisions within their exchange of information articles that specifically permit disclosure of information to an arbitration board. One agreement—the Panama TIEA—has a provision that “parties may exchange technical know-how, develop new audit techniques, identify new areas of non-compliance, and jointly study non-compliance areas.”

The focus of information exchange under MLATs is different than tax treaties and TIEAs. Assistance under a MLAT, including on tax matters, is generally only available for the investigation, prosecution, and prevention of criminal offenses or for proceedings related to criminal matters. MLATs may also explicitly state that no dual-criminality requirement exists for that MLAT. Dual-criminality is the requirement that the conduct in question be a crime under the domestic laws of both the requesting and requested state for assistance to be provided. In 25 MLATs there is a limited dual- criminality requirement, such as for any searches, seizures, or forfeitures. Where a dual-criminality requirement exists, whether or not assistance can be provided on tax matters depends, in part, on the domestic law of the other jurisdiction. MLATs also commonly provide grounds on which a request for information may be refused, but these grounds for refusal vary among agreements.

Appendix V provides detailed information on the contents of each of the agreements.

Volume, Type, and Processing Time of Requests Varies

Volume of Requests Made

IRS provided us with the number of new incoming and outgoing specific information exchange requests for the years 2006 through 2010. The number of incoming requests fluctuated over the 5-year period, ranging from a high of 1,173 requests in 2006 to a low of 797 in 2008. The number of outgoing requests also fluctuated during this period and ranged from a high of 236 requests in 2008 to a low of 165 in 2010. Table 1 provides the number of new incoming and outgoing requests for each year. Requests in this table include both closed requests and requests that were still open at the end of 2010.

The number of outgoing specific requests does not equal IRS’s international enforcement presence or the number of U.S. taxpayers who have been the subject of IRS examinations. According to IRS and Treasury officials, one reason for this is that a single specific request for information from a treaty partner can involve multiple taxpayers. Also, an outgoing information exchange request typically comes after IRS has tried other means to obtain information, including a review of information received from treaty partners through automatic exchanges (approximately 2.1 million records about U.S. taxpayers are received annually by IRS, as discussed below) or through obtaining the information directly from the taxpayer or from third parties using other enforcement tools.

Volume and Type of Closed Requests

Between 2006 and 2010, the IRS closed 5,111 incoming and outgoing requests involving 75 treaty partners. There were 4,217 foreign-initiated incoming requests, and 894 U.S.-initiated outgoing requests closed during this period. The number of closed incoming and outgoing specific requests between the United States and a single treaty partner varied widely, ranging from five treaty partners that had just 1 incoming or outgoing request during the period to a single treaty partner with 711 requests. Also, request activity is concentrated in a small number of countries, with the 10 most-active countries representing roughly 68 percent of all requests.

IRS provided us with data about the type of information that was requested in 3,569 exchanges (2,971 incoming requests and 598 outgoing requests between 2006 and 2009). Corporate records, tax return data, and third-party interviews constituted about 78 percent of closed incoming requests for which we received data on information type. For outgoing requests, corporate records, tax return data, and bank records accounted for 77 percent of exchanges. Requests for bank records made up 6 percent of incoming exchange requests, but 21 percent of outgoing requests. Conversely, requests for third-party interviews were 20 percent of incoming requests, but only 6 percent of outgoing requests. Figure 4 shows incoming and outgoing requests by type of information that was requested for the 3,569 exchanges for which we received data on information type.

IRS also receives and provides information through automatic and spontaneous exchanges. According to EOI/OO officials, the United States is currently engaged in the automatic exchange of information with 25 countries, transmitting approximately 2.5 million records annually to other countries and receiving approximately 2.1 million records from its treaty partners. Through automatic exchange of information, the United States provides some treaty partners with information on taxable income and federal tax withholding related to certain types of income received by U.S. nonresidents. IRS officials told us that the information that the United States receives through automatic exchange of information varies by treaty partner and includes data on wages, interest, dividends, and other forms of income.

Regarding spontaneous exchanges, the United States sends about 10 spontaneous exchanges of information to its treaty partners annually, according to EOI/OO officials. They also said that the United States receives around 300 spontaneous exchanges of information annually, mostly from developed countries with sophisticated tax systems, and that the number fluctuates widely from year to year. IRS officials stated that information the IRS receives spontaneously is processed by IRS Tax Attachés or EOI/OO staff located in one of the agency’s posts of duty or in Washington, D.C. If the taxpayer is the subject of an ongoing examination, the information is forwarded to the appropriate IRS staff for possible action. If the taxpayer is not the subject of an ongoing examination, the information is evaluated to determine if there are tax consequences and whether or not a recommendation for action should be made to the appropriate field staff. Although Tax Attachés and EOI/OO staff evaluate and forward information to the appropriate field offices, agency officials stated that each office has its own business plan which may not include examinations based on spontaneously provided information. Consequently, these examinations would be worked on to the extent local offices consider them to be better opportunities than other cases they would work on using their discretionary audit authority.

Nevertheless, officials noted that spontaneous exchanges have led to some significant tax assessments, including several of $100,000 or more. Taxpayers affected by spontaneous exchanges have at times alerted IRS to others who turned out to have significant additional tax liabilities. In at least some cases, IRS would not have known about the noncompliance in the absence of the spontaneously shared information.

Time Taken to Process Requests for Specific Exchange of Information

The amount of time that the United States and its treaty partners took to close specific requests for information, or processing time, varied widely for requests made between 2006 and 2010. During this period of time, the number of calendar days to close both incoming and outgoing requests for information ranged from requests opened and closed on the same day to one request that took 1,442 calendar days to close. The United States tended to respond to requests for information faster than treaty partners responded to outgoing requests from the United States. The median number of calendar days to close U.S.-initiated outgoing requests was 149, compared to 108 calendar days for incoming requests.

To identify factors that could explain the differences in processing time, we considered the possibility that the type of information requested may be associated with the length of time taken to close the request. We found that, overall, processing times varied by the type of information requested. For all incoming and outgoing requests, processing times ranged from a median of 152 calendar days for requests involving bank records to 31 days for public records. Outgoing requests made by the United States to its treaty partners took longer to close than incoming requests for the same types of information for nearly all categories of information requested. Table 2 provides the processing times for all of the 3,569 requests where the type of information requested was recorded.

Because request processing times for different information types varies, we developed a statistical model to estimate the amount of time that a new request will take to close, holding the type of information requested constant. When controlling for information type, incoming requests to the United States are processed an estimated 17 percent faster on average than outgoing requests from the United States to its treaty partners. As shown in figure 5, our model estimates that most information exchange requests are likely to close about 50 to 200 days after being opened, but some can take much longer.

We also explored whether certain treaty partner characteristics were associated with processing times for incoming and outgoing requests. Assuming that treaty partners who share characteristics would respond to requests similarly, we developed five groups of treaty partners that shared a particular set of characteristics. These characteristics included (1) the type of agreements authorizing exchange of information with the United States, (2) the existence of active automatic exchange of information with the United States, (3) membership in the OECD, (4) implementation of OECD standards for improving transparency and establishing effective exchange of information in tax matters, and (5) trade volume with the United States. Descriptions of the treaty partner groupings that we identified and our hypotheses concerning potential factors that could explain differences in request processing times are summarized as follows:  Agreement type—Tax treaties have multiple purposes, including preventing double taxation and improving tax-law compliance through information exchange, while TIEAs are focused primarily on the exchange of information. Because a TIEA represents a particular commitment to information exchange, we considered the possibility that information exchange requests involving TIEA partners may be addressed more quickly than exchanges with partners with whom the United States does not have a TIEA.  Treaty partners that actively engage in automatic exchange of information with the United States—As noted previously, the United States engages in automatic information exchange with 25 partners. The presence of an active automatic exchange of information arrangement with these countries signifies an agreement between the United States and its treaty partners to exchange information on a routine basis. Given the potential for IRS to leverage relationships established through the automatic exchange of information and the nature of information exchanged, we considered the possibility that specific-exchange requests may be addressed more quickly between the United States and these partners than with partners with whom the United States does not currently share information automatically. We also considered the possibility that automatic exchange may obviate the need for requests for information that IRS or treaty partner tax authorities have readily on hand, leaving a larger percentage of requests for information that take more time to obtain.  OECD Members and Nonmembers—OECD member countries have established and committed to principles and standards of transparency and information exchange for tax purposes, as reflected in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and Article 26 of the OECD Model Tax Convention on Income and on Capital. We considered the possibility that these shared principles related to information exchange, including standards for information availability and access, have contributed to faster request processing times between the United States and treaty partners who are members of the OECD than with partners who are not members of the OECD.  Trade Volume—We considered the possibility that higher trade volume with the United States (imports and exports) could reduce the amount of time that it takes to address requests for information. Higher volumes of cross-border trade can present more opportunities for taxpayers in the United States and abroad to generate foreign- source income, and could indicate an established relationship between the United States and a treaty partner. Given these factors, we examined differences in specific exchange–request processing times between the top 25 U.S. trade partners (among U.S. treaty partners) and all other treaty partners.  Treaty Partner Implementation of International Tax Standards Related to Transparency and Effective Exchange of Information—The international tax standards for improving transparency and establishing effective exchange of information in tax matters were developed by the OECD in cooperation with non-OECD countries and have been endorsed by other organizations in the international community (the United Nations and the Group of Twenty Finance Ministers and Central Bank Governors). The standards require jurisdictions to exchange information on-request in all tax matters for the purposes of administering and enforcing domestic tax law without regard to domestic tax interest or bank secrecy. We considered the possibility that substantial implementation of these standards could contribute to faster request processing times, comparing request processing times for treaty partners that had substantially implemented these standards with those that either had not substantially implemented these standards or were not included in the OECD review of transparency and exchange of information standards as of 2006 (the beginning of our evaluation period).

Using statistical models, and controlling for information type, we compared how processing times for both incoming and outgoing requests differed across the previously described treaty partner groupings. Table 3, provides estimates of the percentage difference in average processing time between incoming and outgoing requests, adjusted for information type, along with 95 percent confidence intervals. After adjusting for the type of information requested, we found no statistically significant difference in processing times for outgoing requests. For example, our model estimates that countries with TIEAs responded to outgoing U.S. requests 5 percent faster than countries without TIEAs, but the difference could range between 14 percent slower and 28 percent faster. This indicates that there is no observable difference between countries with and without TIEAs. The relatively smaller number of outgoing requests tends to increase our uncertainty about the differences across groupings. Fewer opportunities to observe the processing of requests typically produces larger confidence intervals.

Our analysis of the time it takes the United States to respond to incoming requests found that, adjusted for information type, statistically meaningful differences were present among the country groupings, as shown in table 3. The United States responds to information requests from treaty partners with TIEAs significantly faster than to countries without TIEAs, suggesting that the focus on tax information exchange represented by the signing of a TIEA may make a difference in processing time. Response times by the United States for requests from countries with which automatic information exchange is taking place are significantly slower than response times for incoming requests from countries with which automatic information exchange is not taking place. This suggests that automatic exchange may be taking care of simpler requests leaving a larger body of more complicated, time-consuming requests to be handled through specific exchange cases. The United States also responds more quickly to requests from OECD members than to other countries, suggesting that the explicit commitment and common standards between the United States and these countries may make a difference in the time it takes the United States to respond to requests from OECD countries.

For countries that have implemented the international transparency and information exchange standards, we considered the possibility that response times would be faster for countries that have implemented the standards, but instead we found that the U.S. response time to incoming requests from these countries was between 25 and 57 percent slower than the U.S. response to countries that had either not substantially implemented the standards or had not been evaluated. In analyzing the time it takes the United States to respond to requests from the top 25 U.S. trading partners, we considered the possibility that higher volumes of trade would indicate more established relationships between the United States and these countries and faster response times. Instead we found that the U.S. response time to requests from top trading partners was significantly slower. U.S. response times were between 63 and 96 percent slower for requests from top trading partners than from other countries, after adjusting for information type.

The unavailability of certain data to us for this analysis, particularly the details of specific requests, means that we are unable to analyze why the U.S. response time to requests might be slower for some types of countries. While the factors that we analyzed may contribute to differences in processing times among groups of treaty partners, other factors that we cannot analyze may be at work. For example, if a single country involved in a large portion of exchange activity had especially short or long response times, the presence of that country in any of the treaty partner groupings we analyzed could have a disproportionate influence on the estimated differences.

Also, with respect to the processing time differences across the treaty partner groupings, IRS officials noted that country-specific factors, such as the sophistication or complexity of a country’s tax rules and the existence of administrative arrangements such as automatic exchange arrangements, can influence the nature of the information requested and the amount of time required to obtain it. For example, developed countries (like many major U.S. trade partners) tend to have tax systems that are administered through a complex set of tax rules. Under these rules, taxpayers can use intricate tax avoidance or tax evasion strategies, which can lead to examinations of elaborate business relationships, involving one or more entities under the direct or indirect control of a taxpayer. Examinations of this nature can require large volumes of detailed information that can be difficult and time-consuming to obtain. Conversely, the information needs for countries with less complex tax rules tend to be straightforward, uncomplicated and require much less processing time for information requests. Similarly, officials stated that processing times for requests from countries with which the United States exchanges information automatically may take longer because the information requested is more complex and difficult to obtain than the information that is exchanged on a routine basis.

Fluctuations in Time to Fulfill Specific Exchange Requests and the Number of Requests Can Occur for a Variety of Reasons

Similar to processing time across groups of treaty partners, the time required to process a specific exchange varies by individual request. According to IRS and DOJ officials that we interviewed, some of these differences are attributable to factors such as the complexity of the information requested, whether requested information is already on-hand at the tax authority, and whether legal processes must be invoked to secure the requested information. Examples of factors raised in the interviews that can affect the time it takes another country to respond to U.S.-initiated requests are listed below. Officials we spoke to noted that some of these factors may also influence the length of time it takes the United States to respond to requests from other countries.  Requests for complex information take more time to fulfill than requests for less complex information.  Narrowly focused requests for information already reported to the tax authority of the treaty partner are usually quickly addressed because that information is readily available, while requests that require the government agency responding to the request to go to third-party record keepers often take more time and effort to address.  Requests that appear to officials in the foreign country to be inadequately supported or to not demonstrate “foreseeable relevance” to a case can require extensive follow-up between IRS and the exchange partner.  The laws of other jurisdictions have a big influence on the time required to fulfill a request. For instance, some jurisdictions’ bank secrecy rules involve a lengthy court process and possibly a petition to a national banking commission to secure information. Officials also told us that some jurisdictions may give priority to criminal matters, and may view tax matters as civil (as opposed to criminal) in nature.  The organizational structure of a partner jurisdiction’s exchange office can also influence response times, such as when requests are passed through multiple employees and levels of review.  Translation issues can also slow down the amount of time it takes to secure requests if officials in the requested country have to translate the request into or from English before it can be assigned to appropriate staff.

The volume of information exchange activity, especially outgoing requests from the United States, can be influenced by the time it takes for partner countries to respond to requests. We were told that officials consider the costs and benefits of making information exchange requests, including their expectations about the amount of time it will take the treaty partner to respond to the request. Over time, the IRS field staff and others who make requests for foreign information become more willing to request information where they expect to get the information they need in a timely manner. This is particularly true in cases where information has to be secured quickly because, for example, the statute of limitations period is coming to a close.

The relationship between competent authorities of the United States and a treaty partner can also influence the volume of exchange activity. An IRS official described a situation in which a country that received information from the United States subsequently made that information public, in violation of the agreement confidentiality provisions. When an IRS field staff person inquired about making a new request to the country that had not protected U.S. taxpayer privacy, he was told that his request could not be processed at that time because the disclosure issue had not yet been resolved. In another case, an official was informed by an EOI/OO point of contact that one of several requested countries was unlikely to comply with the request and therefore the request was not pursued with that country.

Improved Collection of Balanced Performance Data Could Help IRS Improve Administrative Processes and Program Outcomes for Exchange of Information

GAO guidance on internal controls and numerous other GAO reports say that reliable performance information is a critical tool for managers to use to understand how well processes are working and to identify opportunities to improve those processes. Government Performance and Results Act of 1993 (GPRA) guidance also states that balanced performance information can help managers measure or monitor program accomplishments and progress toward pre-established goals. The collection of balanced performance information should, amongst other things, address both program outputs (product or service delivery) and program outcomes (results of the product or services delivered).

Currently, the IRS collects performance information on the specific exchange of information program in two ways. For IRS, much of the performance information related to exchange of information is collected through an electronic information system called the Issue Management System (IMS). Implemented in October of 2009, IMS is a consolidated database that combines case-management data from multiple programs within the Large Business and International (LB&I) division to (1) support revenue agents in remote locations; (2) improve issue identification; (3) improve information tracking, reporting and sharing; and (4) capture data in support of performance assessment. According to EOI/OO officials, the information exchange–related data collected in IMS is used primarily as an inventory-management tool. They said that managers use the system routinely as new cases come in to make decisions about dividing up the new exchange request cases among the staff based on the staff members’ inventory of open cases. The information collected in IMS also allows managers to monitor program output information such as how much program activity is occurring and the length of time it takes to close requests.

EOI/OO, however, does not currently use the system to collect performance outcome information such as whether IRS actually secured information from or was successful in providing information to U.S. treaty partners. An earlier system used by EOI/OO had a data field for noting that the requested information was provided. Managers told us, however, that it was not useful because it had a default setting of “no,” meaning that negative responses included cases where the staff person entering the data did not make any entry in that field. While the IMS system now in use does not include a field for noting if the requested information was obtained, IRS has deemed the collection of such information worthwhile in the past. Because the primary obligation of the competent authority is to exchange information for tax purposes, collecting information on the extent to which requests are fulfilled would provide managers with valuable information on program outputs.

IRS officials also said that they are not currently capturing or analyzing data on the type of information being requested in their information system which, as our analysis shows, may influence the time that it takes the United States and its treaty partners to respond to requests. Consequently, IRS managers may be missing opportunities to determine why certain countries are much slower than other countries to respond to some kinds of information requests and possibly take steps to work with those countries to improve response times. For instance, IRS might need to explain its requests differently for some countries or may have a basis for encouraging another country to streamline inefficient processes.

IRS also collects data on program performance from agency personnel who make requests for information through the Foreign Information Assistance Request Appraisal Questionnaire, though only rarely. The Appraisal Questionnaire includes a series of questions about the quality of their interactions with EOI/OO staff, usefulness of the information received, and other program outcomes. However, EOI/OO officials told us that fewer than 25 questionnaires were returned between 2006 and 2010. They said that the questionnaires are distributed to program customers with the bundle of information obtained by EOI/OO from the treaty partner, but that they do not usually follow up with customers when questionnaires are not returned.

In order to get a sense of how IRS and DOJ field staff perceive the process of obtaining information from other countries, we interviewed 27 such staff who made specific requests for foreign information in recent years. They described a variety of experiences with the process. Some of these officials told us about problems they encountered or ways that the program could have better helped their audits, investigations, collections activities, or court cases. For example, several said that they would have liked to have known more about the program and its operations prior to preparing their requests. Given the amount of time required to prepare information requests, other program users expressed interest in receiving more up-front guidance on how to prepare a request. Others expressed concern about the length of time required to obtain the information requested or the completeness and utility of the information received. Several of the staff we interviewed also noted how helpful and informative the Tax Attachés, RSRs, or EOI/OO staff that facilitated the process were.

Though collected infrequently, the use of the Appraisal Questionnaire by EOI/OO demonstrates that IRS has judged the collection of such performance information to be worthwhile. If EOI/OO routinely obtained information on, for example, the usefulness of its instructions to field staff or the timeliness of responses, managers would know how common such concerns may be among program users and might be able improve the exchange of information.

Furthermore, currently available data do not provide important outcome information on the program as a whole, such as the usefulness of specific exchanges to IRS tax compliance enforcement efforts. Such information could help identify opportunities to, for instance, better train IRS personnel on when and how to request foreign information and what types of information are most useful in resolving cases. To the extent that IRS would like to minimize the cost of collecting and analyzing information on program outcomes, the agency could consider using a sampling approach that would allow program managers to generalize the information collected from a smaller population of program users to the overall population of program users.

Conclusions

The United States has developed a broad information exchange network. While agreements have many similar features, the specific parameters under which information can be exchanged are unique to the legal and administrative arrangements negotiated by the United States and each separate treaty partner. The volume of information exchanges under these agreements and the amount of time required to process those exchanges varies, and may be influenced by several factors.

Although the IRS collects data on exchanges between the United States and its treaty partners, the agency does not assemble or make use of information such as the extent to which requests for information are fulfilled or the type of information requested, and does not consistently collect customer feedback. Without reliable and consistent data like these, IRS managers may be missing opportunities to identify and address possible problems with the information exchange program and improvements that could make the program more successful. Such information could tell program managers how well IRS is meeting its obligations as the U.S. competent authority and whether administrative processes and procedures need to be examined for ways to improve the transmission of information. Better performance information could not only help improve administrative operations, but could also enhance the usefulness of this important tax law enforcement tool.

Recommendation for Executive Action

To identify opportunities to improve the administrative processes and procedures that the IRS uses to exchange information between the United States and its treaty partners, we recommend that the Commissioner of Internal Revenue determine the key types of information that exchange program managers could use to ensure the program is working as well as possible. The commissioner should specifically require the collection of (1) consistent and accurate data on specific tax information exchange cases, such as the extent to which requests for information are satisfied and the type of information requested, and (2) feedback from information exchange program users on how well the program is working and how it might be improved.

Agency Comments and Our Evaluation

We provided a draft of this report to the Secretary of the Treasury, the Commissioner of Internal Revenue, the Secretary of State, and the Assistant Attorney General for Administration Department of Justice. We received written comments from the Deputy Commissioner for Services and Enforcement of the Internal Revenue Service (IRS); his comments are reprinted in appendix VII. The Secretary of the Treasury, the Secretary of State, and the Assistant Attorney General for Administration Department of Justice did not provide written comments. The Department of the Treasury, IRS, and the Department of Justice also suggested several technical changes to the report, which we incorporated where appropriate.

The IRS agreed with our observation that opportunities exist to improve information exchange between the United States and its treaty partners through improved collection of performance data and information exchange program user feedback. The IRS also agreed with our recommendation that the IRS identify key types of information that exchange program managers could use to ensure that the program is working as well as possible, including consistent and accurate data on specific tax information exchange cases and feedback from information exchange program users.

As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of the Treasury, the Secretary of State, the Attorney General of the United States, the Commissioner of Internal Revenue, and other interested parties. This report will also be available at no charge on GAO’s website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-9110 or brostekm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix VIII.

Appendix I: Scope and Methodology

This report (1) identifies all bilateral income tax treaties, Tax Information Exchange Agreements (TIEA), and Mutual Legal Assistance Treaties (MLAT) between the United States and other countries in force, proposed, or signed as of April 30, 2011, and describes the legal framework and administrative processes that the United States uses to exchange information with its treaty partners; (2) describes the volume and types of information exchanged between the United States and its treaty partners and the time to process requests for information; and (3) identifies opportunities to improve the effectiveness of current U.S. information exchange processes and procedures.

To develop a comprehensive list of countries with which the United States has entered income tax treaties, TIEAs, and MLATs, we examined information obtained from a combination of government and commercially available data to identify agreements that were in force, proposed, or signed as of April 30, 2011. Specifically, we relied on information obtained from Treaties in Force—a compilation of international agreements between the United States and other countries published by the U.S. Department of State, U.S. Tax Treaties (Publication 901) published by the Internal Revenue Service (IRS), the Government Printing Office (GPO) website, Thomson Reuters’s Checkpoint, and Lexis Nexis. For each agreement, we identified the name of the country with which the United States entered into the agreement, the year the agreement was signed, the year the agreement entered into force, and the date the provisions of the agreement were made effective (when provided). For tax treaties, we identified the article within the agreement authorizing information exchange. Where applicable, we also recorded the year of any revisions made to the original agreement, and the effective date of the most recent protocol or other such amendment to the agreement. We consulted with knowledgeable officials at the U.S. Department of State, Department of the Treasury, IRS, and the Department of Justice to ensure the completeness and accuracy of the consolidated list we developed from these sources.

To describe the legal framework for information exchange, including the types of information covered and limitations on information, we systematically analyzed the information exchange provisions contained in all of the income tax treaties, TIEAs, and MLATs that were in force as of April 30, 2011. For income tax treaties, we compared the information exchange provisions in each agreement to key information exchange provisions contained in the 2006 U.S. Model Tax Convention of November 15, 2006. We conducted similar content analysis for TIEAs, by analyzing similarities and differences in the information exchange provisions across the agreements identified. We analyzed each MLAT to determine the extent to which the agreements permit assistance in investigations involving criminal tax matters and limitations on such assistance.

To describe the administrative processes that the United States uses to exchange information with its treaty partners, we reviewed guidance contained in policy documents such as the IRS Internal Revenue Manual and the Department of Justice Criminal Tax Manual. From this guidance we also identified the general procedures that the United States uses to exchange information, including the U.S. departments and agencies involved and paperwork requirements. We also examined user guides for the information systems used to collect data on information requests. We interviewed knowledgeable officials in the Department of the Treasury, the IRS, and the Department of Justice to further understand the role of these agencies and any process or procedural requirements for administering information exchange between the United States and its treaty partners.

To develop summary information on the volume of incoming and outgoing requests for information, processing times, and other characteristics of requested exchanges under the authority of income tax treaties and TIEAs, we analyzed IRS data on all exchange requests that were initiated and completed between January 1, 2006, and December 31, 2010. The information exchange data provided by IRS and discussed in this report also included exchanges made under estate tax treaties, although IRS and Department of the Treasury officials told us that information exchange under these treaties is rare. The information developed only applies to exchanges occurring during this period and cannot be generalized to exchanges occurring outside of this time frame. Because the information exchanged under income tax treaty, TIEA, and MLAT authority is protected by confidentiality provisions contained in the agreements and by U.S. domestic law, we did not have access to data that could reveal the identity of individual taxpayers or individual treaty partners. Therefore, we relied on anonymous country codes assigned by IRS and treaty partner groupings that we developed in consultation with IRS to examine the exchange activity between the United States and its treaty partners. To assess the reliability of these data, we interviewed knowledgeable officials, reviewed system documentation, and examined the data for obvious errors. We determined the data to be sufficiently reliable for this report.

We used statistical models to estimate the difference in closing times among various groups of requests, holding constant the type of information requested. These “duration” models apply only to requests initiated and closed between January 1, 2006, and December 31, 2010. Our data exclude requests that were open at the end of this period, “and IRS could not provide the type of information requested for 1,542 out of 5,111 requests. Our models assumed that most requests close quickly, while a few requests remain open for longer periods of time. This assumption was reasonable, given the actual number of requests that closed at various times in this period. The models made different assumptions about how the mean closing time varied across the groups of interest, such as incoming versus outgoing requests for various types of information. This allowed us to estimate the proportional differences across groups while holding constant the type of information requested, along with the statistical certainty of the estimates.

To identify ways in which the United States can enhance the effectiveness of its administrative practices for sharing information with foreign jurisdictions, we interviewed and collected information from IRS, Justice, and OECD officials and assessed the information obtained against criteria contained in GAO guidance on internal controls and performance measurement. IRS and the Department of Justice provided us the names of officials who had requested information in 2009 and 2010 for use in criminal and civil investigations or cases, and we interviewed 6 IRS and 12 DOJ officials identified in this way. We also selected 11 additional IRS officials to interview using a nonprobability sampling technique, through which we randomly selected at least one exchange case from each of the exchange groupings discussed in the section of this report titled “Volume, Type and Processing Time of Requests Varies,” and asked EOI/OO to provide contact information for the officials involved in the cases. The staff person responsible for two of our randomly selected cases was also on the list of names that IRS had previously provided to us. The total number of IRS and DOJ staff who had made information exchange requests that we interviewed was 27. The information obtained through these interviews is only applicable to the experiences of the officials interviewed and cannot be generalized to the entire population of IRS and DOJ officials making requests through the IRS-specific exchange of information program.

We conducted this audit from January 2010 to September 2011 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: Article 26 (Exchange of Information and Administrative Assistance) of 2006 U.S. Model Tax Convention

The provisions of Article 26 of the 2006 U.S. Model Tax Convention serve as the basis for information exchange in new tax treaties. The article’s provisions are reprinted below.

Appendix III: Administrative Processes for Addressing Outgoing and Incoming Specific Requests for Information

An interactive graphic illustrating the administrative process for incoming and outgoing specific exchanges of information is also shown in figure 1.

Outgoing attachment must contain: - Name and address of taxpayer in question - Type of tax and tax years involved (fiscal/calendar) - Evidence that an investigation is being - Any background information that should not be sent to foreign competent authority - Identification of location of information and why - Any statute, court, or other dates by which the the United States believes it is in that location - Whether the request includes grand jury - Specific information needed - How information is relevant to the investigation - Any statute, court, or other dates by which the - Any documentation certification requirements Step 2 U.S. Competent Authority A formal request letter is prepared and sent to foreign competent authority. Step 3 Foreign Competent Authority A formal request letter is received and a formal response is prepared and sent back to the U.S. competent authority. A formal response may contain partial or complete information, or an explanation of why material cannot be obtained. Step 4 U.S. Competent Authority Information results are sent to IRS Revenue Agent or Examiner Incoming Requests Step 1 Foreign Competent Authority A request for information is sent to the U.S. competent authority.

Incoming foreign requests must contain: - Specific identification of the taxpayer - Itemized list of specific information requested - A detailed narrative identifying the tax nexus of the relevance of the information sought to the taxpayer and the issues examined - An explanation of how the request for transactions, facts, or documents pertains to a tax or a tax liability covered by a tax treaty or a TIEA Step 2 U.S. Competent Authority A request is evaluated and the case is assigned to the appropriate division. Step 3 IRS Revenue Agent or Examiner If feasible, the requested information is obtained within 60 days and sent to the U.S. competent authority. Information results may consist of partial or complete information, or an explanation of why material cannot be obtained. If necessary, a status update is provided every 60 days until resolved. Step 4 U.S. Competent Authority A formal response is sent to the foreign competent authority.

Algeria

See Kingdom of the Netherlands MLAT, which covers Aruba. It may not be used for assistance related to fiscal offenses requested of Aruba.

Potential MLATa 2009 n.a.

Income tax treaty 1980 1984 Yes Potential tax treaty 2010 n.a.

Income tax treaty 2001 2003 Yes Income tax treaty 1973 1976 No Income tax treaty 1999 1999 Yes *Jurisdiction is not currently a tax information exchange partner.

Appendix V: Catalog and Key Characteristics of Information Exchange Agreements

Country

Year most recent protocol with information exchange signed (1)

Y O Y O O O Y Y aa Y Obb N Y Y (6) O N O N N N O Y O Y O N O N N N O Y N N O N N N O N O Y Y Y (7)

Country

N Under the treaty, information may be disclosed in public court proceedings or judicial decisions unless the requested state raises an objection. Treaty provides that information to be exchanged must be of a class that can be obtained under the laws and administrative practices of each state with respect to its own taxes.

Country Panama

C, I, R, V, U, Z 1. the identity of the taxpayer whose tax or criminal liability is at issue; 2. the period of time with respect to which the information is requested; 3. the nature of the information requested and the form in which the requesting party would prefer to receive it; 4. the matter under the requesting party’s tax law with respect to which the information is sought; 5. the reasons for believing that the information requested is foreseeably relevant to tax administration and enforcement of the requesting party, with respect to the person identified in subparagraph (a) of this paragraph; 6. grounds for believing that the information requested is present in the requested party or is in the possession or control of a person within the jurisdiction of the requested party; 7. to the extent known, the name and address of any person believed to be in possession or control of the information requested; 8. a statement that the requesting party would be able to obtain and provide the requested information if a similar request were made by the requested party; 9. a statement that the requesting party has pursued all reasonable means available in its own territory to obtain the information, except where that would give rise to disproportionate difficulty. “J”—Information to be exchanged without regard to whether the person to whom the information relates is, or whether the information is held by, a resident of the party, or a requested party is not obliged to provide information that is neither held by its authorities nor in the possession or control of persons within its territorial jurisdiction, or both. (Bermuda TIEA requires when a requesting state asks for information (1) relating to a nonresident or (2) relating to a matter that is not criminal or tax fraud, the requesting state shall certify that the request is relevant and necessary for the determination of a tax liability. If information is requested on a nonresident in either jurisdiction, the requested state must be satisfied that the information is necessary for the proper administration and enforcement of fiscal law.) “T”—Information to be exchanged without regard to whether the requested party needs such information for its own tax purposes, or information to be exchanged without regard to whether the conduct being investigated would constitute a crime under the laws of the requested party, or both. “L”—Privileges under the law of the requesting party shall not apply to the execution of a request by the requested party. (Under Bahamas TIEA, information is not to be exchanged that constitutes or would reveal a privileged communication, but each contracting party has the exclusive right to determine what constitutes privilege under its own laws.) “B”—Each party shall ensure that it has the authority to obtain and provide information held by banks, other financial institutions, and any person, including nominees and trustees, acting in an agency or fiduciary capacity, or information regarding (beneficial) ownership, or both. (Costa Rica TIEA states that when Costa Rica is the requested state, it will provide bank information only with the authorization of the Judge of Administrative Trials, which is granted in matters related to the enforcement of laws relating to tax fraud as defined by Costa Rican law.) “E”—Allow officials of the requesting party to enter the territory of the requested party to interview individuals and examine records or attend a tax examination, or both. “D”—Request is not to be declined because the taxpayer disputes the tax liability. “M”—Where the requesting party has not pursued all means available in its own territory to obtain the information, except where such recourse would give rise to disproportionate difficulty. “C”—Where the disclosure of the information requested would be contrary to the public policy of the requested party. “X”—Information is subject to legal privilege. “I”—Information contains trade, business, industrial, commercial, or professional secret or trade process. “R”—For the administration or enforcement of a provision of tax law of the requesting state that discriminates against nationals of the requested state. “V”—That would result in taking administrative measures at variance with the requested party’s laws and administrative practices, provided there is compliance with the Exchange of information article. “U”—The requested party shall not be required to obtain and provide information that the requesting party would be unable to obtain in similar circumstances under its own laws. “Z”—The statute of limitations applies to the requesting party. (Peru TIEA does not mention statute of limitations, but does say that the TIEA does not apply to the extent that an action or proceeding is barred by the requesting state’s laws.)

Circumstances under which requests can be denied A, B, C, D, G A, C, D A, B, C, D A, B, C, D, G A, B, C A, B, C, D A, B, C, D A, B, C, F A, B, C, F A, B, C, H A, B, C, F B, C, D, F, H, J A, B, C A, B, C, D, G A, B, C, D, G, J A, C, D A, B, C A, B, C, D, F, H, J A, B, C, D, F, H, J A, B, C, D, F, H, J A, B, C, D, F, H, J A, B, C, D, F, H, J A, B, C, D, F, H, J A, B, C D, contrary to the public interest A, B, C A, B, C, D B, C, D, F B, C, D, F B, C, D, F A, B, C A, B “N”-MLAT contains a provision specifically stating that dual criminality is not a requirement for assistance “X”-MLAT contains no discussion of dual criminality “L”-MLAT contains a dual-criminality requirement in certain circumstances, such as requests dealing with searches and seizures and forfeitures “Y”-MLAT contains a dual-criminality requirement for assistance “A”-the request relates to an offense under military law that would not be an offense under ordinary criminal law “B”-the request relates to a political offense “C”-the execution of the request would prejudice the security or other similar essential interests of the requested state “D”-the request does not conform to the requirements of the treaty “E”-the request relates to an offense for which the penalty in the requesting state is deprivation of liberty for a period of a year or less “F”-the request relates to an offender who, if proceeded against under the law of the requested state for the offense for which assistance is requested, would be entitled to be discharged on the grounds of a previous acquittal or conviction “G”-the execution of the request would violate the constitution of the requested state “H”-there are substantial grounds leading the central authority of the requested state to believe that compliance would facilitate the prosecution or punishment of the person to whom the request refers on account of his race, religion, nationality, or political opinions “I”-the execution of the request would violate the obligations of the requested state under any international multilateral treaty relating to human rights “J”-the request does not show either that proceedings for criminal law enforcement purposes have been instituted in the requesting state or than (sic) there are reasonable grounds for believing that a criminal offense has been or is likely to be committed Bulgaria is considered to have a partial MLAT through the EU-MLAT. Mutual Legal Assistance Agreement. On October 10, 2010, the Netherlands Antilles dissolved and is now Curaçao and St. Maarten.

Appendix VI: Composition of Treaty Partner Groupings

and Development (OECD)

Partners with a Tax Information Exchange Agreement (TIEA)

and Development (OECD)

Partners with a Tax Information Exchange Agreement (TIEA)

and Development (OECD)

Partners with a Tax Information Exchange Agreement (TIEA)

and Development (OECD)

Partners with a Tax Information Exchange Agreement (TIEA)

Appendix VII: Comments from the Internal Revenue Service

Appendix VIII: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, David Lewis, Assistant Director; LaKeshia Allen, analyst-in-charge; Gezu Bekele; Nicole Dery; Anna Draganova; Michele Fejfar; Robert Gebhart; Emily Gruenwald; Donna Miller; John Mingus; Ellen Rominger; Andrew Stephens; Jessica Thomsen; and Jeff Tessin made key contributions to this report.