Disputes when exchanging tax information based on a bilateral agreement

2012 06 finance islamique

International tax cooperation is a mainstream topic after many States signed agreements relating to the automatic exchange of information.

However, this international tax cooperation is not limited to a single document. The principality of Monaco has signed thirty-two bilateral agreements on this topic.

A bilateral agreement is an international instrument which allows a State (the petitioner) to contact another State (the respondent) to collect information which is not subject to an automatic exchange. This information is then transferred to the petitioner State for tax purposes.

These agreements are all based around decree no. 2,693 of 23 March 2010 for implementation purposes, which rules on the specific type of exchange by granting people the right to be informed and to appear before local courts to oppose this.

Since the first cases in Monaco courts, an initial procedural change took place through decree no. 6,392 published in the Journal de Monaco on 19 May 2017. This order amended decree no. 2,693 of 23 March 2010.

Since then, it is specifically possible for litigants to respond to the government’s submissions. Until now, and in order to guarantee the rights of defence and due process in view of an obscure text, the Monaco courts ordered the State of Monaco to produce a State application file, allowing the litigant to conclude on these new documents through the same ruling.

In theory, these bilateral agreements allow the petitioner State tax authorities to request “genuinely relevant” information. Therefore, the petitioner State, which has control and knowledge of the file, must determine the relevant information it needs and exclude information that is not really relevant in advance. This is a legal condition of filing for an injunction and encourages tax cooperation between countries.

Case law and modern doctrine tend to require the respondent authority to thoroughly check the tax assistance application to ensure that the information requested for tax inspection purposes is actually relevant. As a result, the national court would be able to refuse to implement any request for assistance that is clearly a “fishing expedition”.

This is now the position of Monaco courts. However, this requires clarification. The legal review is not based on the merits of the request for information, but on the injunction’s compliance with the conditions for implementing the bilateral agreement.
This is why only requests where it is unlikely that they will help clarify a taxpayer’s situation will be excluded.

This thorough review approach by Monaco must be understood in light of the general objective of these agreements: to facilitate exchanges of information in the context of mutual trust, allowing rapid and efficient exchanges, with the respondent state not able to replace the petitioner state.