B Explanatory memorandum by Mr Omtzigt,
rapporteur
1 Introduction
1. Council of Europe member states are confronted with
extraordinary economic hardships that have put an enormous strain
on public finances in order to stabilise national budgets, help
vulnerable enterprises and save jobs. Their economic situation ranges
from precarious stability to recession or even depression.
2. In these circumstances it is vital to ensure that state tax
revenues are collected fully and that any tax avoidance – by individuals
or business entities – is tackled in a prompt and effective manner.
The burden of the crisis must be shared fairly by all taxpayers.
There should be no legal loopholes, nor safe havens for tax evasion.
Our countries can no longer afford to tolerate bank secrecy for
tax matters. In fact, the current crisis is also an opportunity
to improve tax transparency and compliance generally.
3. To combat tax evasion, information exchange between states
is paramount. If bilateral treaties can be viewed as a useful step
in the right direction (over 3 000 bilateral tax agreements currently
exist throughout the world), a comprehensive multilateral convention
offers far greater advantages, as has been made clear in the G20
discussions. A multilateral approach has an obvious benefit in setting
a uniform standard for information exchange, harmonising interpretations
of the terms and conditions governing information exchange, as well
as providing adequate guarantees for the respect of taxpayer rights.
4. The existing multilateral instrument – the joint Council of
Europe/OECD Convention on Mutual Administrative Assistance in Tax
Matters (ETS No. 127) – has therefore received a new impetus with
a view to aligning it to internationally agreed standards of transparency
and opening it up for signature worldwide by the means of an amending
protocol. The ambition is to finalise such a protocol by April 2010
when the next meeting of G20 ministers of finance and central bankers
should take place.
2 Background
5. At their meeting on 9 and 14 December 2009, the Committee
of Ministers’ Deputies invited the Parliamentary Assembly to submit
an opinion on a draft protocol to the Convention on Mutual Administrative Assistance
in Tax Matters (ETS No. 127), as contained in CM(2009)165. This
request was transmitted to the Committee on Economic Affairs and
Development for report and I was designated as rapporteur, taking
into account that I am a member of both the Committee on Economic
Affairs and Development and the Committee on Legal Affairs and Human
Rights.
6. The Committee on Economic Affairs and Development has followed
the process relating to the revision of the convention by means
of a draft protocol from an early stage, notably by appointing me
to take part as its representative at the joint meeting of the co-ordinating
body of the convention (operating under the aegis of the OECD) and
the Council of Europe Ad hoc Committee on the Revision of the Convention
on Mutual Administrative Assistance in Tax Matters (CAHTAX), held
in Paris on 22 and 23 October 2009. That meeting and the ensuing
written consultation produced the first version of the draft protocol,
which was subsequently submitted for discussion, first in the Rapporteur
Group on Legal Co-operation (GR-J) and then in the Committee of
Ministers’ Deputies.
7. We should recall, in this context, that the convention as
such originated in Assembly
Recommendation 833
(1978) on co-operation between the Council of Europe
member states against international tax avoidance and evasion, on
the basis of a report by the Assembly Committee on Economic Affairs
and Development (
Doc. 4098).
8. The convention, opened for signature in 1988, was prepared
jointly by the Council of Europe’s Committee of Experts on Legal
Co-operation and the OECD’s Committee on Fiscal Affairs. It was
a major step – ahead of its time – towards more structured international
collaboration on information exchange to combat tax evasion. The
convention was designed to cover all taxes (except for customs duties)
Note and to facilitate mutual
administrative assistance on a broad range of tax matters, including
tax recovery and certain aspects of tax evasion that may lead to
judicial prosecution.
9. This pioneering step in standard-setting has largely contributed
to triggering international efforts for managing cross-border data
exchange more effectively, even if certain countries with strong
(and quite excessive) bank secrecy traditions continued to oppose
the global shift towards more transparency. The proposed protocol
to the convention seeks to remove the remaining obstacles to international
co-operation in this area, in particular as regards bank secrecy
for tax matters, and constitutes valuable progress in global standard-setting.
10. At present the convention has been ratified by 14 states out
of 54 to which it is potentially applicable (i.e. member states
of the Council of Europe and of the OECD), three more states (Canada,
Germany and Spain) have signed but not yet ratified the convention
NoteNote and
other states (notably, Slovenia) are expected to sign it soon. Among
the states that have ratified the convention in recent years are
France (2005), Italy (2006), the United Kingdom (2008) and Ukraine
(2009).
11. In the light of the ongoing financial and economic crisis,
fiscal problems, tax transparency and the convention in question
have received renewed attention from G7, G8 and G20 countries eager
to improve international co-operation standards and pressing “grey-”
or “black-” listed countries to become more co-operative. We note
in particular the statement of the G20 Summit in London on 2 April
2009 declaring that “the era of banking secrecy is over” and confirming
the readiness of states “to take action against non-co-operative jurisdictions,
including tax havens”. As matters now stand, only two G8 members
– Japan and the Russian Federation – have not signed the convention.
The rapporteur regrets that a number of Council of Europe member
states that have a long history of protecting bank secrecy have
not signed the convention.
12. Encouraged by this new resolve, the OECD initiated, in July
2009, a process aimed at amending the existing Council of Europe/OECD
convention in order to allow for the opening of this multilateral
instrument to accession by states beyond these organisations’ membership.
With the draft protocol intended to amend the convention, the parties
also seek to adjust some key provisions, such as those relating
to personal data protection, safeguards on taxpayer rights and the
need to take account of essential developments in international
standards of co-operation in the tax field, notably as regards the
specific grounds for refusing a request to supply information. An
ambitious timetable agreed for this process seeks to finalise the
draft protocol by April 2010, in time for the next G20 meeting of
finance ministers and central bankers in South Korea, and the G20
Summit (to be held in Canada in June 2010).
13. The Committee of Ministers’ Deputies, when transmitting the
proposed draft protocol to the Assembly for opinion, indicated that
some issues had not been agreed by consensus. These concern the
date of effect of the amended convention, the reference to data
protection standards, and the so-called “disconnection clause” relating
to the compatibility between the convention as amended and the application
of European Union legislation.
14. An Assembly debate will give members the opportunity to provide
a parliamentary view on the draft protocol, as it currently stands,
and will enable them, in due course, to contribute to the promotion
of the convention, as amended, through national parliaments.
3 The draft protocol
15. With a view to preparing a draft protocol to the
convention, the co-ordinating body met on 22 and 23 October 2009.
It worked on the draft text prepared by the OECD secretariat on
the basis of the OECD model tax convention and initial comments
provided by national experts from finance ministries and the Council
of Europe Secretariat. As Assembly representative, I highlighted
on that occasion the role of our Assembly in serving as the parliamentary
forum on the OECD’s activities and the political challenges pertaining
to the draft protocol from the point of view of Council of Europe
values and activities in standard setting.
16. The main concern was to ensure that the “joint venture” of
the Council of Europe and the OECD in producing the draft protocol
was consistent with their legal standards. From the Council of Europe
angle particular attention was paid to the issues of privacy and
data protection, safeguards on fundamental human rights and freedoms,
administrative assistance in criminal matters, the modalities of
opening the convention to accession by non-member states of the
two organisations and compatibility with anti-money-laundering action. This
rapporteur appreciated the good co-operation with, and valuable
input by, the Council of Europe’s MONEYVAL Committee, the Treaty
Office, the Law Reform Department and the Consultative Committee
of the Convention for the Protection of Individuals with regard
to Automatic Processing of Personal Data (T-PD).
17. Regarding privacy and data protection, the Council of Europe
representatives sought a fair balance between the public and private
interests involved by proposing that references be included, in
the draft protocol (Article VI, paragraph 1), to internationally
recognised data protection standards, such as the Council of Europe Convention
for the Protection of Individuals with regard to Automatic Processing
of Personal Data (ETS No. 108),
Note relevant OECD guidelines and United
Nations instruments. Participants provisionally agreed that a general
reference to “internationally recognised data protection standards”
could be included in the draft protocol (under Article I, paragraph
1, and Article VI, paragraph 1), whilst specific legal instruments
could be mentioned in the Explanatory Report of the convention,
but later – during a written consultation – rejected this approach.
18. The subsequent consultations with eminent data protection
specialists have shown that the current text of the convention (Article
22.1) is preferable because it refers to both the laws of requesting
and requested state in conformity with binding data protection and
privacy standards set out in Convention No. 108 and European Union
law. A compromise proposal therefore suggested a formula that would
explicitly refer, in Article VI, paragraph 1, to “the necessary
level of protection of personal data under the domestic law of the supplying
party” or “in accordance with the safeguards required to ensure
the necessary level of protection of personal data under the domestic
law of the supplying party”. Whilst fully sharing this point of
view, the rapporteur noted that a number of countries represented
on the co-ordinating body (including the United States, Canada,
Belgium, Finland, France, Norway, Poland and Sweden) objected to
the proposed formula.
19. This, however, does not necessarily mean that these countries’
other authorities – representing political decision-making circles
– share the same position. A similar rift in national positions
can be observed in the context of discussions at the Council of
Europe Development Bank between the members of the Administrative Council,
on the one hand, and of the Governing Board, on the other. Aware
of these difficulties, the rapporteur organised an informal consultation
of all stakeholders and is now able to propose a compromise formula
that meets the concerns of all parties in the negotiating process.
Article 22.1 of the amended convention (paragraph 1 of Article VI
in the draft protocol) should read as follows: “Any information
obtained by a Party under this convention shall be treated as secret
and protected in the same manner as information obtained under the domestic
law of that Party and, to the extent needed to ensure the necessary
level of protection of personal data, in accordance with the safeguards
which may be specified by the supplying Party as required under
its domestic law.”
20. Corresponding clarifications should be added in the explanatory
report of the amended convention in order to refer explicitly to
the OECD Guidelines on the Protection of Privacy and Transborder
Flows of Personal Data and the Council of Europe Convention No.
108. These clarifications will also help rule out any abusive interpretation
of the data protection clauses. In particular, bank secrecy cannot
serve as a reason for declining a request for data exchange.
21. The current version of the draft protocol (under Article VI,
paragraph 2) also foresees that information obtained by a Party
to the convention may be disclosed “in public court proceedings
or in judicial decisions relating to … taxes” without prior authorisation
by the competent authority of the data supplying Party
Note –
thus amending the procedure currently laid out in the convention
– unless the domestic law of the requested state provides for such
a notification of taxpayers (see also paragraph 24 below). This
provision could be completed by adding a mention of “criminal investigations”
to the enumeration of circumstances for disclosure.
22. In considering personal data protection imperatives, it may
also be useful to bear in mind the case law of the European Court
of Human Rights concerning the protection of personal data and the
explanations relating to Article 8 of the Charter of Fundamental
Rights of the European Union which entered into force in December
2009 with the Lisbon Treaty. The latter explanations notably refer
to Article 8 (Right to respect for private and family life) of the
European Convention on Human Rights and Convention No. 108.
23. As regards safeguards on fundamental human rights and freedoms,
the draft protocol proposes, under Article V, a revised wording
of the convention’s Article 21 on the protection of persons and
limits to the obligations to provide assistance. Two new paragraphs
(“g” and “h”) were added to paragraph 2 in order to refer to the
principle of proportionality in providing administrative assistance,
including in tax recovery, under the domestic laws or administrative
practice of the requested state. Moreover, two new paragraphs (3
and 4) have been added to clarify the obligations of the requested
state for supplying information that it may not need for its own
tax purposes or that is held by financial institutions. The alternative
wording, proposed by the Council of Europe Secretariat, to include
explicit mention of the supremacy of safeguards provided for in
the Council of Europe Convention for the Protection of Human Rights
and Fundamental Freedoms, the 1966 United Nations International
Covenant on Civil and Political Rights and other applicable international
human rights instruments, was not retained but reference to these
instruments could be added to the Explanatory Report of the protocol
to the convention.
24. Concerning administrative assistance in criminal (tax) matters,
the convention implicitly provides for some retroactivity in the
use of data obtained because information exchanged by definition
relates to matters that have occurred in the past. Thus paragraph
2 of Article 4 indicates that “a Party may use information obtained
… as evidence before a criminal court” subject to prior authorisation
by the Party which supplied the information. It also specifies that
“two or more Parties may mutually agree to waive the condition of
prior authorisation”. The draft protocol proposes to delete this
paragraph and lifts the obligation for the applicant state to seek
prior authorisation of the requested state in case it intends to
use data obtained as evidence before a criminal court.
25. At the meeting of the co-ordinating body, several participants
proposed to include, in the draft protocol under Article VIII relating
to the amended convention’s entry into force, a provision specifying
that for tax matters involving intentional conduct which is liable
to prosecution under the criminal laws of the applicant Party, the
provisions of the convention, as amended, should have effect from
the date of entry into force in respect of a Party and apply to
administrative assistance related to earlier taxable periods. This
would enable the draft protocol to effectively extend the scope
of the convention in the field of administrative assistance in criminal
(tax) matters.
26. Thus, paragraph 6 of Article VIII, paragraph 1, of the current
draft protocol foresees the possibility of a voluntary arrangement
whereby “any two of more Parties may mutually agree that the convention,
as amended by the 2010 protocol, shall have effect for administrative
assistance related to earlier taxable periods or charges to tax”
than the moment of entry into force in respect of a Party. The next
paragraph (paragraph 7 of Article VIII, paragraph 1) relating to
administrative assistance in criminal tax matters should be read
in conjunction with new paragraph f (coming under paragraph 1 of
Article 30 of the convention which deals with reservations) so as
to allow for the application of these provisions to administrative
assistance for periods of up to three years preceding the entry
into force of the amended convention in respect of a Party.
27. Several countries, notably Austria, Liechtenstein, Luxembourg
and Switzerland, had objected to such an addition despite the fact
that an overwhelming majority of member states of the Council of
Europe and the OECD wish to go forward with the current draft text.
The Jurisconsult of the Council of Europe has estimated that the
issue requires clarification as regards the exact scope of paragraph
7 either through the text of the draft protocol or in the explanatory
report.
28. The rapporteur welcomes the current formula (with paragraphs
6 and 7 under Article VIII plus paragraph f described above) that
would enable enhanced – including retroactive to a certain extent
– co-operation among the interested parties to the convention as
amended, subject to the mutually agreed terms between those parties,
while also allowing the newly acceding parties to notify their reservation
with regard to retroactive application of certain provisions. The
rapporteur believes that the retroactive application of the amended
treaty to administrative assistance in civil and criminal tax matters
could further be strengthened and trusts that any necessary clarification
of current provisions in that sense can be done through the explanatory
report of the protocol.
29. Regarding countries that are not members of the Council of
Europe or the OECD, the draft protocol sets out a procedure whereby
any such state may ask to be invited to accede to the convention
as amended by the protocol. It explains that such requests should
be addressed to one of the depositaries (Secretaries General of,
respectively, the Council of Europe or the OECD) who would in turn
inform the parties, the Committee of Ministers of the Council of
Europe and the OECD Council, and transmit the request to the co-ordinating
body for consideration.
30. In respect of the Council of Europe and OECD member states,
new accessions would imply the signature and ratification of the
convention as amended by the protocol, unless otherwise notified
to one of the depositaries in a written form by those states wishing
to become a party to the convention.
31. As for the so-called “disconnection clause” currently contained
in Article VII of the draft protocol, the rapporteur proposes that
the Parliamentary Assembly endorse the formula that the Council
of Europe and the European Commission agreed as early as 2005 and
which is reiterated by the Committee of Ministers’ Deputies in document
CM(2009)185final. In this context, the rapporteur also refers to
the report prepared by Mr Prescott, rapporteur of the Committee
on Legal Affairs and Human Rights, and notably the contribution made
by the expert Mr David Anderson at a hearing on 1 October 2009 before
the Committee on Legal Affairs and Human Rights.
Note
4 Conclusion
32. In conclusion, the rapporteur proposes that the Parliamentary
Assembly support the current provisions of the draft protocol (as
it appears in CM(2009)165) to Convention No. 127. The rapporteur
then asks the Committee of Ministers to seek to ensure that the
compromise wording concerning personal data protection as set out
in paragraphs 19 and 21 and the so-called “disconnection clause”
as set out in CM(2009)185 final be included in the final text of
the draft protocol.
***
Reporting committee:
Committee on Economic Affairs and Development
Reference to committee:
Reference 3617 of 20 November 2009
Draft opinion adopted
on 26 January 2010
Members of the Committee:
Mr Paul Wille (Chairperson),
Mr Ertuğrul Kumcuoğlu (Vice-Chairperson), Mr Albrecht Konečný (Vice-Chairperson), Mr
Giuseppe Galati (Vice-Chairperson),
Mr Ruhi Açikgöz, Mr Miguel AriasCañete,
Mr Robert Arrigo (alternate: Mrs Marie-Louise Coleiro Preca), Mr Viorel Riceard Badea,
Mrs Doris Barnett, Mrs Maryvonne Blondin, Mr Fernand Boden, Mr Márton Braun, Mr Patrick Breen, Mr Erol Aslan Cebeci, Mr Per Dalgaard, Mr Kirtcho
Dimitrov, Mr Tuur Elzinga, Mr
Relu Fenechiu, Mr Erich Georg Fritz,
Mr Guiorgui Gabashvili, Mr Marco Gatti, Mr Paolo Giaretta, Mr Francis Grignon, Mrs Arlette Grosskost
(alternate: Mr Michel Hunault),
Mrs Azra Hadžiahmetović,
Mrs Karin Hakl, Mr Stanisław Huskowski,
Mr Igor Ivanovski, Mr Čedomir Jovanović, Mrs Nataša Jovanović, Mr
Antti Kaikkonen, Mr Oskars Kastēns, Mr Serhiy Klyuev, Mr Bronisław Korfanty, Mrs Athina Kyriakidou, Mr Bob Laxton, Mr Harald Leibrecht, Ms
Anna Lilliehöök, Mr Arthur Loepfe, Mr Denis MacShane (alternate:
Mr Jim Hood), Mr Dirk van der
Maelen (alternate: Mr Geert Lambert),
Mr Yevhen Marmazov, Mr Jean-Pierre
Masseret (alternate: Mrs Josette Durrieu),
Mr Silver Meikar, Mr Miloš Melčák,
Mr José Mendes Bota, Mr Andrey Molchanov (alternate: Mr Nikolay Shaklein), Mr Juan Moscoso del
Prado Hernández, Mrs Lilja Mósesdóttir,
Mr Alejandro Muñoz Alonso,
Mrs Olga Nachtmannová, Mrs Hermine Naghdalyan, Mr Gebhard Negele, Mrs Mirosława Nykiel, Mr Mark Oaten (alternate:
Mr James Clappison), Mrs
Vassiliki Papandreou, Mrs
Ganira Pashayeva, Mrs Marija Pejčinović-Burić,
Mr Petar Petrov, Mr Viktor Pleskachevskiy, Mr
Jakob Presečnik, Mr Maximilian Reimann, Mr
Andrea Rigoni (alternate: Mrs Anna Maria Carloni),
Mrs Maria de Belém Roseira, Mr Giuseppe Saro, Mrs Ingjerd Schou, Mr Predrag Sekulić, Mr Samad
Seyidov, Mr Leonid Slutsky, Mr Serhiy Sobolev,
Mr Christophe Steiner, Mr Vyacheslav Timchenko, Mr Joan Torres Puig, Mrs Arenca Trashani,
Mr Mihai Tudose, Mr Arpád Velez, Mrs Birutė Vėsaitė,
Mr Oldřich Vojíř (alternate: Mr Tomáš Jirsa),
Mr Konstantinos Vrettos,
Mr Harm Evert Waalkens (alternate: Mr Pieter Omtzigt),
Mr Robert Walter, Mr Karl
Georg Wellmann, Mrs Maryam Yazdanfar.
NB: The names of the members who took part in the meeting
are printed in bold
Secretariat of the committee: Mr
Newman, Ms Ramanauskaite, Mr de Buyer and Mr Pfaadt
