Convention on Mutual Administrative Assistance in Tax Matters
The Organization of Economic Cooperation and Development (“OECD”) – Council of Europe (“CoE”) Convention on Mutual Administrative Assistance in Tax Matters (the “Convention”) entered into force in April 1995 when five states, Denmark, Finland, Norway, Sweden and the United States ratified the Convention. At this time the Convention is in force in 11 countries and three other countries, including Canada, have signed or ratified the Convention but cannot yet apply the Convention.
Under the Convention, participating countries benefit from three forms of administrative assistance: the exchange of information; assistance in the collection of taxes; and delivery of documents.
Question 1
Regarding the Convention signed in April 2004 by Canada, can the CRA provide any information regarding its application?
Response 1
First, the Convention will only come into force after amendments have been made to the Canadian tax laws and Canada has advised one of the Depositaries of the Convention (i.e. the Secretary General of the CoE or the Secretary General of the OECD) that the Convention can apply in Canada. Amendments to the Act were included in the technical amendments issued by the Department of Finance in July 2005.
The CRA signed the Convention because it provides useful tools that are not available under our bilateral tax treaties. For example, the Convention will apply to a broader range of taxes (e.g. the Goods and Services Taxes and excise taxes). Most of Canada’s bilateral tax treaties only deal with income tax.
The application of the Convention will be similar to the application of our bilateral tax conventions that already provide for the exchange of information. The Convention will not override any bilateral treaties to which Canada is a party. Canada will be able to use the most appropriate instrument in any future exchanges of information.
The Convention allows multilateral exchanges of information in situations where more than two countries are involved in the same case, a feature not available bilaterally. In such circumstances, the Convention could be used for the exchange of information instead of using three or more bilateral tax conventions for such an exchange of information. In our view this will:
- increase international cooperation to combat tax avoidance and tax evasion;
- enhance the ability of CRA to verify that businesses and individuals have paid their fair share of taxes; and
- improve the administration of the Canadian tax system.
In this regard, a number of multilateral simultaneous tax examinations have been undertaken under the Convention by other parties to the Convention, covering both direct and indirect taxes, and have proven to be very effective.
The Convention also:
- entrenches the different types of exchanges of information;
- clarifies how exchange of tax information can be undertaken;
- provides for the conducting of tax examinations abroad; and
- gives the parties the opportunity to decide whether to agree to examine simultaneously, each in their own country, the tax affairs of a person in which they have a common interest.
Question 2
Under the Convention, participating countries may benefit from three forms of administrative assistance: the exchange of information; assistance in the collection of taxes; and delivery of documents. Is there is any reason why Canada has only agreed to the exchange of information provisions of the Convention?
Response 2
Canada has not agreed to assist other countries in collecting taxes from Canadian residents because it prefers to continue to negotiate assistance in the collection of taxes on a bilateral basis. Canada has not agreed to the provisions on delivering documents to taxpayers, because our treaty partners have access to Canadian postal and courier services.