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Uncovering the secrets of tax havens

Work in the OECD to expand the exchange of tax information seeks to bring into the mainstream jurisdictions that have typically been regarded as tax havens or countries applying harmful tax competition.

Just a few years ago the OECD published a list of countries that do not participate in bilateral exchange of tax information (black list), or only to a limited extent (grey list). The threat of sanctions and injury to their reputation on the international arena has convinced most of the countries on the OECD’s black list and grey list to enter into bilateral tax information exchange agreements (TIEAs).

Under agreements of this type, not only tax information is subject to exchange, but also for example information about ownership structures of entities. The range of taxes covered by the exchange of information is also broad. States regarded as tax havens have agreed to share information not only about their residents, but also about all entities falling within their territorial jurisdiction—including to obtain information held by such entities. The exchange will also cover banking information and information held by the administrative services sector. States or territories which are former British colonies have made the greatest commitments to cooperate in exchanging tax information, including the Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Jersey, and the Isle of Man.

Poland has concluded 15 TIEAs (when the FATCA Agreement with the United States is included). Agreements with Andorra, the Bahamas, Bermuda, the British Virginia Islands, the Cayman Islands, Gibraltar, Guernsey, the Isle of Man, Jersey and San Marino are already in force, while those with Belize, Dominica, Grenada and Liberia are awaiting entry into force (according to the Ministry of Finance website).

Depending on the provisions of the specific TIEA, information is exchanged upon request (such provisions are found in most of the TIEAs concluded by Poland), but under some agreements exchange is also conducted automatically or spontaneously.

Generally, under the TIEA a party requested to provide assistance is not required to provide information that is not in the possession of its authorities or persons falling under its territorial jurisdiction, or cannot be obtained from such persons.

Typically the TIEA permits a state to refuse to provide information subject to legal protection or information that would reveal any commercial, economic, industrial or professional secrets.

A state requested to provide assistance may also refuse, among other grounds, if the requesting party has not pursued all means available in its own territory to obtain the information, unless applying such means would be disproportionately difficult or disclosure of the information would violate public policy.

TIEAs also contain provisions releasing the states from a requirement to provide information that would reveal confidential information shared between legal counsel and their clients in connection with legal advice or for use in existing or potential proceedings.

Consequently, Belize, Bermuda, the Cayman Islands, Gibraltar, Montserrat and the Turks and Caicos Islands have been removed from the Polish list of countries and territories applying harmful tax competition, set forth in regulations issued by the Minister of Finance. Jersey also no longer appears on the list of tax havens. On 28 October 2015 the European Union concluded an agreement with Liechtenstein on exchange of information about financial accounts, which is to enter into force on 1 January 2017 with respect to data from the beginning of 2016. This means that Liechtenstein will also no doubt be dropped from the list of tax havens in Poland.

Aldona Leszczyńska-Mikulska, Private Client Practice, Wardyński & Partners