Article 26 of the OECD Model Tax Convention on Income and on Capital

AuthorDavid Kerzner, David W. Chodikoff
chapter seven
This chapter explains Article 26 of the OECD Model Tax Convention on Income
and on Capital.1 Canada has over ninety double tax conventions (DTCs) in
force that contain an article modelled on Article 26, and the United States
has over sixty.2 As explained in Chapter 6, both Canada and the United States
generally reserve the use of DTCs for countries with more complex econ-
omies and rely on the use of tax information exchange agreements (TIEAs)
for tax havens and smaller jurisdictions. Chapter 6 also explains problems
with Canada’s international tax policies surrounding the use of DTCs and
the relationship between DTCs and the “exempt surplus” rules in the Can-
adian foreign af‌f‌iliate tax regime.3 Additionally, this chapter examines Article
XXVII on exchange of information (EOI) in the Convention between Canada
and the United States of America with respect to Taxes on Income and on Capital.4
A theme of this book is evaluating how well TIEAs and EOI work to combat
tax evasion. This chapter refers to an important battle between the United
States and Switzerland over the use of the EOI Article in the Convention be-
tween the United States of America and the Swiss Confederation for the Avoidance
1 OECD, Committee on Fiscal Af‌fairs, Model Tax Convention on Income and on Capital (Paris:
OECD, 1992) (loose-leaf) at Art 26 [convention and commentary together: Model Tax Treaty].
2 A list of Canada’s DTCs in force is available online: www.f‌
in_force--eng.asp. A list of US treaties in force is available online:
3 See Chapter 6, Section B(2).
4 26 September 1980 (as amended to the protocols signed on 14 June 1983, 23 March 1984, 17
March 1997, 29 July 1997, and 21 September 2007) [Canada–US Tax Treaty].
226 InternatIonal tax evasIon In the Global InformatIon aGe
of Double Taxation with respect to Taxes on Income5 to obtain information on
US tax cheats with undeclared bank accounts at UBS. The challenges faced by
the United States in obtaining taxpayer information on undeclared American
account holders evidence important international tax policy issues regarding
the ef‌f‌icacy of EOI as a stand-alone tool to combat tax evasion. In pursu-
ing this information from the Swiss, the United States faced legal challenges
discussed in detail in Chapter 5. Moreover, the United States faced econom-
ic, political, and historical challenges in dealing with Switzerland over EOI.
These multiple challenges underscore a key policy problem in dealing with
tax havens to combat tax evasion. One of the themes of this research is that
these policy challenges continue to be ignored by the OECD and, more re-
cently, by the Global Forum on Transparency and Exchange of Information
for Tax Purposes and the G20 in favour of solutions that seek tax harmon-
ization in the form of treaties and model agreements. Finally, this chapter
explains the procedures used by both Canada and the United States to obtain
information from and exchange information with other governments.
1) Introduction
Article 26 of the Model Tax Treaty provides as follows:
1. The competent authorities of the Contracting States shall exchange such
information as is foreseeably relevant for carrying out the provisions of this
Convention or to the administration or enforcement of the domestic laws
concerning taxes of every kind and description imposed on behalf of the
Contracting States, or of their political subdivisions or local authorities, in-
sofar as the taxation thereunder is not contrary to the Convention. The
exchange of information is not restricted by Articles 1 and 2.
2. Any information received under paragraph 1 by a Contracting State shall
be treated as secret in the same manner as information obtained under the
domestic laws of that State and shall be disclosed only to persons or author-
ities (including courts and administrative bodies) concerned with the as-
sessment or collection of, the enforcement or prosecution in respect of, the
determination of appeals in relation to the taxes referred to in paragraph 1,
or the oversight of the above. Such persons or authorities shall use the infor-
mation only for such purposes. They may disclose the information in public
5 2 October 1996, together with a protocol to the Convention, 2 October 1996, S Treaty Doc
105–8, online: [US–Switzerland Tax Treaty].

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