Bermuda's treaty negotiating team has successfully negotiated and signed 21 tax information exchange agreements ("TIEAs"), with a further nine agreed in principle. Each one is compliant with the internationally recognised standards set out in the Organisation for Economic Cooperation and Development's (the "OECD") model form of agreement on exchanges of information on tax matters (the "Model TIEA").

Today, I will address the common negotiable points, and key standard terms, considered by participating countries.

Negotiable Points

The type of information to be exchanged, the timing and method of exchange of such information, the sharing of costs incurred in providing such information and the protection of rights (both individual and corporate) under the laws of participating countries are the most commonly negotiated topics of any TIEA.

Participating countries are free to include additional terms that are of interest and benefit to them. As an example, once in force, the terms of the TIEA between Bermuda and Canada will provide for favourable tax treatment of certain income received by Canadian companies from subsidiary companies established and operating in Bermuda.

Standard Terms

There are 16 Articles contained in the Model TIEA that are provided by the OECD with interpretive commentary. The purpose of these Articles is to establish the standards of effective exchange of information. The Model TIEA is not intended to be the sole form for agreement between countries, and accordingly provides for a wide application of the Articles. The key standard terms are:

"Object and Scope"

A TIEA must include a provision, pursuant to which the competent authorities of participating countries (e.g. the Ministry of Finance in Bermuda) agree to provide assistance to the other participating country through the exchange of information relevant to the administration or enforcement of the domestic laws of the other country that relate to the specific taxes identified in the TIEA. A statement as to what information is to be exchangeable must be included and will usually include information that is relevant to the determination, assessment and collection of the specific taxes identified, the recovery and enforcement of tax claims, or the investigation or prosecution of tax matters.

"Process of Exchange"

Each participating country must ensure that its competent authority has the power to obtain and provide the information identified in the TIEA. An agreement to establish and implement such authority through appropriate laws should be included.

The information agreed to be exchanged may be held by any person or entity in a participating country, including banks, other financial institutions, and individuals acting as nominees, trustees or agents, to name a few.

"The Request"

The competent authority of the country making a request for information must provide particular information to the competent authority of the requested country in order to "demonstrate the foreseeable relevance of the information to the request". The Model TIEA suggests that such requests should include, among other things, the identity of the person under examination or investigation, a statement of the information being sought, the tax purpose for which the information is being sought and the grounds for believing that the information is held in the requested country or is in the possession or control of a person within the jurisdiction of the requested country.

"Grounds for Refusal"

There are a number of reasons a competent authority may decline to provide information requested. The Model TIEA provides a number of examples including, but not limited to, (i) where the information requested would not be obtainable under the laws of the requesting country for the purposes of administration or enforcement of its own tax laws; (ii) where the request does not conform to the terms of the TIEA under which the request is being made; (iii) where the information requested is a trade, business, commercial or professional secret or trade process; (iv) where such information is protected by legal privilege; or (v) where disclosure would be against public policy in the requested country.

"Confidentiality"

The most sensitive issue arising from the introduction of TIEAs is the confidential and private nature of the information being exchanged. The Model TIEA requires that any information received pursuant to the terms of a TIEA shall be treated as confidential and may only be disclosed to those persons or authorities of the recipient country involved in the circumstances giving rise to the request for information and may only be used for the purpose it was requested.

The question of liability for damages caused to a person by the provision of information on that person by the holder of such information is a concern for anyone in Bermuda who holds information on others and who may be asked to provide such information pursuant to a request arising from a TIEA entered into by Bermuda.

Bermuda has the appropriate legislation in place to ensure that the Ministry of Finance has the authority and power to obtain certain types of information that may be requested by a foreign competent authority. To minimise the risk of liability of inappropriate disclosure of information, or to ensure appropriate procedure is followed when handling and disclosing information, legal advice should be sought.

Attorney Steven Rees Davies is an Associate and a member of the Corporate Finance Team within the Corporate and Commercial Practice Group at Appleby. A copy of Mr. Rees Davies' column can be found on the Appleby website at www.applebyglobal.com.

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.