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SADC WORK ON EXCHANGE OF INFORMATION

SADC WORK ON EXCHANGE OF INFORMATION. Dr Seth P. Macheli ATAF-EU-URA TECHNICAL CONFERENCE on EXCHANGE OF INFORMATION AND TAX TREATIES Kampala, Uganda: 19-20 April 2012. Overview. SADC Members Background Development framework Legal framework Tax Subcommittee AATM Facilitative Work

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SADC WORK ON EXCHANGE OF INFORMATION

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  1. SADC WORK ON EXCHANGE OF INFORMATION Dr Seth P. Macheli ATAF-EU-URA TECHNICAL CONFERENCE on EXCHANGE OF INFORMATION AND TAX TREATIES Kampala, Uganda: 19-20 April 2012

  2. Overview • SADC Members • Background • Development framework • Legal framework • Tax Subcommittee • AATM • Facilitative Work • End

  3. SADC Members Members • SADC currently has 15 members: • Angola; • Botswana; • Democratic Republic of Congo (DRC); • Lesotho; • Madagascar; • Malawi; • Mauritius; • Mozambique; • Namibia; • Seychelles; • South Africa; • Swaziland; • United Republic of Tanzania; • Zambia; and • Zimbabwe.

  4. Background Vision A common future, a future within a regional community that will ensure economic well-being, improvement of the standards of living and quality of life, freedom and social justice and peace and security for the people of Southern Africa. This shared vision is anchored on the common values and principles and the historical and cultural affinities that exist between the people of Southern Africa. • Mission To promote sustainable and equitable economic growth and socio-economic development through efficient productive systems, deeper co-operation and integration, good governance, and durable peace and security, so that the region emerges as a competitive and effective player in international relations and the world economy

  5. Background Development Framework • SADC has developed and implemented a framework for regional integration which commits SADC Member States to a comprehensive programme of long-term economic and social policies, and at the same time, providing the SADC Secretariat and other SADC Institutions stakeholders with pointers on SADC approved economic and social policies and priorities. • The development framework is contained in two programmatic documents: • The Regional Indicative Strategic Development Plan (RISDP), which provides a comprehensive development agenda on socio-economic policies . It is a 15-year plan which started in 2004 and which is being implemented in phases of five years in pursuit of key goals, policies, strategies, principles and specific targets; and • The Strategic Indicative Plan of the Organ (SIPO), which provides an institutional framework for implementation of the objectives of the Organ on Politics, Defence and Security Cooperation, established in 1996 to play a vanguard role as part of the institutional mechanisms for promoting and maintaining peace and stability in the region.

  6. Background Institutional Framework • Article 9 of the SADC Treaty establishes 8 institutions: • The Summit of Heads of State & Government; • SADC Tribunal; • Council of Ministers; • Organ on Politics; • Defence & Security Cooperation, Sectoral/Cluster Ministerial Committees; • SADC Secretariat; • Standing Committee of Senior Officials; and • SADC National Committees. • All constitute a governance framework for decision making in SADC, with Summit being a supreme body with ultimate approval powers in designated key areas, including Protocol-making

  7. Background Legal Framework • SADC Treaty 1992 – supreme law (constitution) – laying down a foundation for cooperation • Article 21 • enjoins Member States to cooperate in all areas necessary to foster regional development and integration on the basis of balance, equity and mutual benefit. • Enjoins MS, through appropriate institutions of SADC, to coordinate, rationalise and harmonise their overall macro-economic and sectoral policies and strategies, programmes and projects in the areas of co-operation. • Areas of cooperation (7+): • food security, land and agriculture; • infrastructure and services; • industry, trade, investment and finance; • human resources development, science and technology; • natural resources and environment; • social welfare, information and culture; and • politics, diplomacy, international relations, peace and security. • Additional areas of co-operation may be decided upon by the Council.

  8. Background Legal Framework (cont.) Treaty • Article 22 – Protocols • Cooperation in defined areas to be achieved through Protocols as may be necessary in each area of cooperation, spelling out: • the objectives of such area of cooperation; and • institutional mechanisms for the attainment of such cooperation and regional integration. • the Article then prescribes the procedure for conclusion of such Protocols and sets out key principles that should underlie such Protocols, including: • Protocol to be effective after 30 days of deposit of instruments of ratification by 2/3 of MS; • Once in force, MS to join by accession; • Binding to MS who are parties thereto only; • Decisions on effective Protocol only by Parties; • No reservations allowed to a Protocol.

  9. Background Legal Framework (cont.) • Protocol on Finance and Investment (FIP) • Emanates from amongst the 7 areas of cooperation under Article 21 of the Treaty, specifically the area of Industry, Trade, Investment and Finance; • Main areas of cooperation within the broader sub-area of finance and investment are: • Cooperation on investment; • Macroeconomic convergence; • Cooperation in taxation and related matters; • Cooperation amongst Central Banks; • Network of Development Finance Institutions; • Cooperation in regional capital and financial markets; • Anti-money laundering; and • Project Preparation and Development Fund. • FIP is implemented through Annexes , forming an integral part of the FIP– Article 23 thereof, dealing in more detail with the defined specific area within finance and investment. • Annex 3 is the one that focuses on cooperation in taxation and related matters. Article 5 of FIP enjoins State Parties to co-operate in taxation matters and to co-ordinate their tax regimes within the Region as set out in Annex 3

  10. Background Legal Framework (cont.) • Annex 3 • Developed to give legal and practical effect to State Parties commitment to cooperation in taxation and related matters. • Defines three areas of coordination and cooperation: • Development of a SADC Tax Database – publicly accessible depository of important tax information in the Region. • Capacity Building • Tax Incentives • Tax agreements • Indirect taxes • Settlement of disputes

  11. Tax Subcommittee Mandate • The Tax Subcommittee is tasked with implementation of Annex 3 of FIP. • It coordinates work on the 6 areas of cooperation under Annex 3. • Reports directly to the Committee of Senior Treasury Officials (a Standing Committee of Senior Officials focusing on Finance and Investment) Structure • Made up of senior tax and treasury officials from Member States. • To facilitate more focused efforts towards implementation of the technical areas of tax coordination Ministers of Finance and Investment endorsed the formation of 3 technical working groups to support the work of the Tax Subco, namely • Tax Agreements Working Group (TAWG); • Tax Incentives Working Group (TIWG); and • Indirect Tax Working Group (ITWG) • Deals directly with the other areas of cooperation and coordination Work on Exchange of Information & Tax Treaties • The Tax Subcommittee has, through TAWG, developed two important instruments on exchange of information and tax treaties: • SADC Model Tax Agreement • SADC Agreement on Assistance in Tax Matters

  12. SADC Model Tax Agreement • Developed pursuant to Article 5 of FIP to establish a common policy for State Parties for the negotiation of Tax Agreements between or amongst themselves or with countries outside the Region, taking account of the particular socio-economic development needs of each State Party (permits noting of reservations). • Article 26 deals specifically with Exchange of Information, follows the OECD approach and encapsulates the following key principles: • Information “foreseeably relevant” • For administration or enforcement of domestic taxes of every kind and description); • Not restricted to Articles 1 and 2 (Applies to residents as well as non-residents and to income as well as consumption taxes).

  13. SADC Model Tax Agreement Article 26 (cont.) • The rule established in the Article allows information to be exchanged in three different ways: • on request, it being understood that the regular sources of information available under the internal taxation procedure should be relied upon in the first place before a request for information is made to the other Contracting State; • spontaneously, as in the case of a Contracting State having acquired through certain investigations, information which it supposes to be of interest to the other Contracting State; and • automatically, as, for example, when information about one or various types of income, having their source in a Contracting State and received in the other Contracting State, is transmitted systematically to that other Contracting State.

  14. SADC Model Tax Agreement Article 26 (cont.) • Also following the OECD standard, Article 26 sets the usual caveats and safeguards: • That exchanged information must be treated with secrecy; • That information must be exchanged even if the requested Contracting State has no interest in it; • That bank secrecy, amongst others, will not be a bar to information exchange; • That the Article does not impose on the requested Contracting State the obligation to: • do anything which is contrary to the laws and administrative practice of either State; • to supply information which is not obtainable under the laws of either State or in the normal course of the administration of either State; or • to supply information which discloses any business secret, or information the disclosure of which is contrary to public policy. • Model used by all SADC countries in negotiating amongst themselves and with other countries outside of the Region. Commentary • SADChas developed a Commentary to the Model Tax Agreement, that provides links to the OECD and UN Commentaries as necessary. • Comprehensive commentaries provided only in relation to those specific areas where the Model Tax Agreement differs with the two OECD and UN Models

  15. SADC-AATM SADC Agreement on Assistance in Tax Matters (AATM) Background • the AATM has been developed by the Tax SubCom, specifically the TAWG, pursuant to Article 5(5) of FIP, requiring State Parties, through the Tax Subcommittee, to draw up guidelines for the effective exchange of information and implementation of Mutual Agreement Procedures. • the AATM has gone a step further and been constructed as a legally binding multilateral agreement for the SADC Region. • Developed in recognition of the limited number of DTAs concluded amongst Member States and the time it takes to conclude those. Easier to conclude AATM which deals exclusively tax administration matters, as opposed to convoluted tax policy issues under DTAs Object • State Parties undertake to assist each other in respect of tax matters, especially those relating to: • the exchange of information; • the carrying out of joint examinations; • the carrying out of simultaneous tax examinations; and • Assistance in the collection of taxes.

  16. SADC-AATM AATM Key Features • Coverage – Article 3 • taxes on income and on capital; and • taxes on goods and services • excludes customs duties. • Information exchange – Article 4 • In substance, follows the OECD approach outlined above: (differences only in language) • It spells out the different forms of exchange of information: • Spontaneously; • Automatically; or • Upon request • Such information “as may be relevant”.

  17. SADC-AATM AATM Key Features • Tax examinations abroad – Article 5 • To bolster effective exchange of information. • Occurs in the territory of the requested State. • May take two forms: • Interview by officials of the requesting State, subject to a written consent of the taxpayer; • Presence of officials of the requesting State during an examination by officials of the requested State - may be present at any stage of the examination(No need for consent– only notification to the taxpayer – decisions on conduct of examination by officials of requested State).

  18. SADC-AATM AATM Key Features (cont.) • Simultaneous examinations • Also intended to bolster effective exchange of information and to apply in fitting cases. • may be conducted at the request of one Contracting State for two or more States to consult together for the purposes of determining cases and procedures for simultaneous tax examinations. • Under this arrangement, examinations take place in two or more States having a common interest in the affairs of a particular person/taxpayer. • Purpose of examinations being to share information upon conclusion of such examinations. • Costs • Article 9 lays down a general rule that, for all forms of assistance, that is, exchange of information as well as assistance in collection of taxes, the requested State shall bear all costs incidental thereto. • An exception is made in relation to substantial or extraordinary costs, where the requested State is required, upon anticipating such costs and before incurring them, to notify the requesting State, whereupon the competent authorities of concerned States “shall decide the manner in which the costs shall be borne.”

  19. SADC-AATM AATM Key Features (cont.) • Implementing legislation • Article 10 enjoins all Contracting States to enact any legislation necessary to comply with, and give effect to, the terms of the Agreement – to be able to provide the assistance in the Agreement. • Relevant for such SADC Member States that may not already have such legislation in place. • Relationship with other international agreements or arrangements • Article 11 stipulates that AATM and other international agreements or arrangements should, in relation to cooperation in tax matters, be seen to be complimentary and augmentative of each other; not in any way limiting each other. • Status of AATM • Drafting finalised in 2007/2008 but pending endorsement by the Ministers of Justice and approval by SADC Summit.

  20. Facilitative Work • Facilitation of Technical Workshops • SADC has collaborated with its development partners, in particular, the OECD, to host technical workshops on tax information and bank secrecy. • in February 2004 and November 2006, SADC, with the technical support of the OECD, hosted such technical workshops in South Africa for tax officials of all SADC Member States • The workshops interrogated the underlying legal basis for international exchange of information and, with illustrative case studies, highlighted the balance between the legal obligation to exchange information and the limitations that safeguard taxpayers’ rights. • The workshops further examined the practical aspects of information exchange, looking at such issues as how to make a request for information and how to respond to a request; and on the use of new technologies to share information; and also looking at access to bank information and discussing issues around bank secrecy, specifically examining issues raised in the OECD 2000 report Improving Access to Bank Information for Tax Purposes. • Financially supported Member States to attend an ATAF-OECD Seminar on Tax and Development held in Gaboraone, Botswana, in 2010, which amongst others dealt at length with tax information exchange issues.

  21. Facilitative Work • Facilitation of TIEAs • SADC has recently facilitated multilateral negotiations of Tax Information Exchange Agreements between SADC Member States and identified states and territories. • In October 2011, 6 SADC Member States negotiated TIEAs with the States of Guernsey in South Africa in a multilateral negotiation forum. • In March 2012, 6 SADC Member States negotiated with the Isle of Man. • While negotiations are multilateral, TIEAs were concluded on a bilateral basis with the two territories. • Most important benefit of such approach is the opportunity for cross-fertilisation of negotiating skills and the on-the-job capacity building opportunity that the exercise offers.

  22. End Thank you

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