Role of Tax Information Exchange Agreements in Curbing Tax Evasion and

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Over a long time, the relationship between the activation of financial resources for development and international tax cooperation have featured prominently in the outcomes of various reports of the bodies working at the international level to coordinate and harmonize the efforts of various countries to eliminate tax evasion and avoidance en masse.

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Role of Tax Information Exchange Agreements in Curbing Tax Evasion and Avoidance Customer Care No. 91-11-45562222 www.taxmann.com

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Introduction Over a long time, the relationship between the activation of financial resources for development and international tax cooperation have featured prominently in the outcomes of various reports of the bodies working at the international level to coordinate and harmonize the efforts of various countries to eliminate tax evasion and avoidance en masse. Tax treaties play a very crucial role in the context of international cooperation in tax matters. On the one hand, they encourage global investment and consequently, global economic growth by reducing or eliminating international double taxation over cross-border income, and on the other hand these treaties go a long way in enhancing cooperation among tax administrations, in dealing with international tax evasion. A Tax Information Exchange Agreement (TIEAs) allows for the free trade of financial tax information irrespective of differences in either a country's requirement or meaning of a predicate crime to tax evasion and money laundering. Often, conflict may arise among countries when a particular country must access information that may be held by a foreign legal system, for the enforcement of its own laws. These conflicts are resolved through the execution of collaborative tax treaties. 2 Customer Care No. 91-11-45562222 www.taxmann.com

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The Organization for Economic Cooperation and Development (OECD) has established various standards on transparency and exchange of information for tax purposes and it strongly encourages countries to adopt these standards in their dealing with each other on such matters. The OECD and the Financial Action Task Force, members of which are the G-20 countries, have stated that a country must have at least twelve TIEA's in order to be regarded as co-operating in matters of tax information exchange transparency. The jurisdictions which fail to achieve this target are regarded as non-cooperative jurisdictions. These exchange agreements are intended to permit full exchange of information on  criminal and civil tax  matters between the two signatories. The present study looks into the detailed aspects of tax information exchange among countries and its various general and legal facets. Taxes have been rightly called the building block of civilization. International Taxation refers to the tax treatment of international transactions. Since all countries have their own tax rules and the rules of one nation are rarely perfectly consistent with those of another, it is possible that income will be taxed more than once in the hands of the same recipient, which is sometimes referred to as double taxation, or that it will go untaxed by any jurisdiction. Both efficiency and natural concept of fairness dictates that all those who benefit from the services provided by the government, should help to pay for it. 3 Customer Care No. 91-11-45562222 www.taxmann.com

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The resolution of this issue is the main purpose of international tax agreements (ITA), which seek to set out detailed allocation rules for different categories of income. On one hand, international tax agreements deal mainly with the elimination of double taxation, on the other hand, they also serve other purposes like the provision of non-discriminatory rules, the prevention of tax evasion, arbitration and conflict resolution. The blurring boundaries of countries, including increasing inter national investment and trade, has increased the chances of conflict between tax jurisdictions. At the center of jurisdictional conflicts lies the issue of the jurisdiction to tax. There are no restrictions however, under international law to a legislative jurisdiction to impose and collect taxes. In most of the countries, the jurisdiction of imposing and charging tax is based on the internal legislative process, which is an expression of national sovereignty. Countries apply their jurisdiction to tax, based on varying combinations of source and residence principles. This, together with the inherent differences in definition, accounting principles and practices, and income recognition rules, may result in double taxation in the hands of the same entity or, in some cases, in a jurisdictional vacuum. The most important issue lying beneath all international tax considerations is how the revenue which is collected from taxes imposed on income earned by the entities of a transnational corporate system is allocated among different countries.   Customer Care No. 91-11-45562222 www.taxmann.com

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5 To read more, please click here Customer Care No. 91-11-45562222 www.taxmann.com