1. Exchanging Information in Standard Formats Nancy King, Program Analyst J.D. Carroll, Manager IRS Exchange of Information Programs

2. KEY CONCEPTS  LEGAL AND POLICY BACKGROUND ISSUES  IRS EXCHANGE OF INFORMATION PROGRAMS  ROUTINE/AUTOMATIC EXCHANGE PROGRAM  ROUTINE/AUTOMATIC EXCHANGE FORMATS  ROUTINE/AUTOMATIC EXCHANGE ISSUES

3. Legal Basis for Exchange of Information  IRC Section 6103(k) - Disclosure of certain returns and return information for tax administration purposes  (4) Disclosure to competent authority under tax convention  Bilateral Tax Treaties, (OECD) Convention on Mutual Administrative Assistance in Tax Matters, Tax Information Exchange Agreements (TIEA)  Over 1500 Bilateral Tax Treaties worldwide

4. WHY DO TAX ADMINISTRATIONS EXCHANGE INFORMATION?  CORRECT IMPLENTATION OF DOMESTIC TAX LAWS OF THE CONTRACTING STATES  EXCHANGE ARTICLES IN TREATIES CREATE AN OBLIGATION TO EXCHANGE INFORMATION  ENCOURAGE RECIPROCITY  FACILITATE VOLUNTARY COMPLIANCE ON GLOBAL LEVEL

5. TYPES OF INFORMATION EXCHANGED  PUBLIC DATABASES  BOOKS & RECORDS, TRANSACTION NFORMATION  THIRD PARTY INFORMATION/INTERVIEWS  BANK ACCOUNT RECORDS, REAL ESTATE RECORDS  INTERNAL TAX FILES

6. LIMITATIONS TO THESE EXCHANGES   TAX PURPOSE ONLY   TREATY IDENTIFIED TAX (new treaties go beyond)   TREATY ARTICLE EXEMPTIONS   INFORMATION MUST BE KEPT CONFIDENTIAL IN SAME MANNER AS DOMESTIC TAX INFORMATION – –Receiving State’s Confidentiality laws apply

7. IRS EXCHANGE OF INFORMATION PROGRAMS   SPECIFIC/COLLATERAL REQUESTS: COUNTRY REQUESTS “TAXPAYER SPECIFIC” INFORMATION ON SPECIFIC TAXPAYERS   SPONTANEOUS EXCHANGE: PASSING ON INFORMATION WHICH MIGHT BE OF INTEREST   SIMULTANEOUS EXAMINATION (SEP)/CRIMINAL INVESTIGATION (SCIP): FACE- TO- FACE MEETINGS OF AUDIT/INVESTIGATION TEAMS

8. IRS EXCHANGE OF INFORMATION PROGRAMS  INDUSTRY-WIDE EXCHANGE: NON- TAXXPAYER SPECIFIC EXCHANGES OF “INDUSTRY SEGMENT INFORMATION  COLLECTION ASSISTANCE: COLLECTION OF A TREATY PARTNER’S TAXES  ROUTINE/AUTOMATIC EXCHANGE: MASS EXCHANGE OF TAXPAYER INFORMATION

9. AUTOMATIC/ROUTINE EXCHANGE PROGRAM  MASS EXCHANGE (usually once a year) OF “PASSIVE” INCOME INFORMATION  INFORMATION USUALLY HAS A DOMESTIC PURPOSE FIRST  REPORTS PAYMENTS TO NON-RESIDENTS OF A COUNTRY (UNITED STATES USES IRS FORM 1042- S TO COLLECT INFORMATION)

10. AUTOMATIC/ROUTINE EXCHANGE FORMATS  PAPER DOCUMENT EXCHANGES  OECD Standard Paper Format Exists  Not used (or substantially modified) by most countries  Various languages, alphabets  Costs associated with preparation of format used only once annually  Costs associated with printing/mailing  Difficulty/expense of transcribing information for processing purposes (receiving country)

11. AUTOMATIC/ROUTINE EXCHANGE FORMATS MAGNETIC MEDIA EXCHANGES OECD Standard Magnetic Format (SMF) OECD Standard Magnetic Format (SMF)  Superseded use of numerous proprietary formats  Developed so that both sending and receiving countries worked with one format  United States was a participant  Implemented in 1993  Standards  Fixed record format length  One income per record  Multiple payers/recipients

12. AUTOMATIC/ROUTINE EXCHANGE FORMATS OECD TRIES TO MOVE TO EDI  1994-96 -- Results show that countries were not ready to implement  Problems with the SMF  Record too large  Many fields were not used  Too inflexible  Definitional problems prevented common use of record layout  Decided to revise

13. AUTOMATIC/ROUTINE EXCHANGE FORMATS REVISED SMF  Smaller record length  Somewhat fewer fields (down to 104)  Better definition of how fields are to be used  Allowed for use of fixed or free-format fields  Whole currency units  Expanded codes  Called for use of 8-bit ASCII -- EBCDIC allowable  Compatible with various media  Country-specific User Guide

14. AUTOMATIC/ROUTINE EXCHANGE FORMATS BASIC SMF ELEMENTS u Recipient of the income u Payer of the income u Taxpayer identification number (TIN) u Inclusion of other recipient or intermediary u Tax year/date of payment u Type of income u Amount of income u Tax withheld/refunded

15. AUTOMATIC/ROUTINE EXCHANGE ISSUES PROBLEMS STILL ENCOUNTERED  Type of media sent/received  Media is dependent on country’s internal system  Formats may not match  Important identification information is missing (e.g., TIN)  Lack of User Guide  Lack of knowledge of other countries’ tax laws, which drive their needs  Cannot be required from a treaty partner

16. AUTOMATIC/ROUTINE EXCHANGE ISSUES MORE REMAINS TO BE DONE  Further revision of the SMF format must address the following matters  Simplification of the format  Removal of fields not used  Acknowledgement of the differing needs of the various tax regimes using the SMF  Usefulness of the SMF is in direct proportion to the ability of a tax administration to convert information for effective domestic use in a timely, cost-effective manner

17. AUTOMATIC/ROUTINE EXCHANGE ISSUES  Address the comparability and compatability of various countries’ systems  Acknowledge and work with various levels of development and sophisiticaton  Essential for consideration of future transmission via electronic means  Enhance the flexibility of the record layout  Update and expand the number of codes used  Design to keep pace with changes to tax laws

18. AUTOMATIC/ROUTINE EXCHANGE ISSUES “NON-TECHNICAL ISSUES”  Identification of and coordination with all the players  Issues regarding principles of disclosure must be addressed  Timeliness of receipt must be addressed  Encourage use by all OECD and non-OECD countries