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A Guide to Tax Information Exchange Agreement (TIEA)

A Tax Information Exchange Agreement is the name given to a bilateral agreement between two countries to pave the way for exchanging information about taxes. Many business owners may tend to worry about the existence of a TIEA between their home countries and the country which boasts their offshore setup, such as offshore company UK, an offshore set up in Hong Kong, and so forth. 

Before making the TIEA request, the country must possess information linking an offshore account to a resident taxpayer. The evidence or information may be in transfers, corporation documents, usage of debit cards, etc. 

The TIEA request is not free either, which is why there are less than 100 requests per year. It means a country will have to proceed with necessary precautions before forwarding a request concerning foreign setups such as offshore account Hong Kong, an offshore company in Seychelles, so forth. 

Read on to know more about the TIEA. 

What Is A TIEA? 

The Organization for Economic Cooperation and Development (OECD) has come through with a process that enables specific non-OECD offshore hubs such as an offshore company in Malaysia or Singapore to efficiently eliminate practices that promote tax avoidance, tax evasion, and so forth. 

The offshore jurisdictions can commit to eliminating nefarious business practices via the signing of TIEAs with countries that are part of the OECD. These agreements aim to lay down the groundwork for efficient information exchange and improve the transparency of financial transactions carried out by taxpaying individuals. 

Jurisdictions that attest to these treaties must come equipped with legal and administrative frameworks that duly support information exchange. For instance, it implies that something as crucial as the information on a Labuan Offshore bank should not be hindered due to bank secrecy laws. 

What Is the Need for the TIEA? 

When the government of any country tries to get its hands on information secured by a foreign legal system to enforce its laws, it may grow into international conflicts. Consequently, collaborative treaties can help keep such conflicts at bay. 

The OECD or Organization for Economic Co-operation and Development laid down the standards for exchanging information on taxation. A jurisdiction must have twelve TIEAs if it wishes to be held as a collective force towards promoting information exchange and transparency.

If any jurisdiction does not possess the required number of TIEAs, it will be held as a non-complying force. Twelve TIEAs may be the standard, but G-20 countries want collaborating jurisdictions to go above and beyond. 

A TIEA comes into force when both parties have provided legal effect to the same. 

What Does a TIEA Aim to Do? 

Tax Information Exchange Agreements intend to perform the following functions: 

  • Maintenance of higher standards for the collection of information about accounting and taxpayers
  • Promotion of transparency and efficient governance 
  • Improving upon the stability of the financial sectors of different jurisdictions
  • Battling criminal activities such as tax evasion, fraud, etc
  • They are improving the reputation and legitimizing offshore setups such as offshore companies in Singapore, Malaysia, etc. 
  • They pave the way for streamlined integrations of offshore financial hubs with the international taxation system and the global community. 

How is the TIEA different from Any Other Comprehensive International Tax Agreements? 

Comprehensive International Tax Agreements can include tax treaties, double tax agreements, and so forth. However, unlike these agreements, TIEAs do not include any provisions concerning the issuance of taxing rights over income. 

Other differences include: 

  • TIEAs are far more extensive than Comprehensive International Tax Agreements. 
  • TIEAs are narrower than agreements such as tax treaties or DTAs because the exchange of information is subject to the particular investigation taking place for the time being. 

Can A Country Decline Comply with a Request for Tax Information? 

Several jurisdictions can decline to provide any tax information on offshore setups such as offshore banks in Bahamas based on the following: 

  • If the party requesting the tax information has not mulled overall available resources in its own country to attain the required information 
  • If the disclosure of the tax information goes against the public interest of people
  • If the request is more general and less specific 
  • If the request doesn’t conform to the details provided within the TIEA
  • And so forth 

It is worth noting that a TIEA does not imply a necessary exchange of information. On the contrary, these agreements are subject to requests, and no exchange of information will take place arbitrarily.

TIEAs can be a great way of boosting the reputation of offshore setups in different jurisdictions. If you wish to learn more about offshore businesses or gain other valuable business insights, our expert consultants can help. Get in touch with us today!