Exchange-of-Information Clauses in International Tax Treaties

Philippe Bacchetta (University of Lausanne; Swiss National Bank - Study Center Gerzensee; Centre for Economic Policy Research (CEPR); Swiss Finance Institute) and Maria Paz Espinosa (Universidad del Pais Vasco - Department de Fundamentos del Analisis Economico) published this 2001 paper in International Tax and Public Finance, Vol. 7, No. 3, 2000

Here is the Abstract:

This paper examines bilateral double taxation treaties, with an emphasis on information exchange among tax authorities. A major objective is to understand which countries are more likely to sign a tax-relief treaty and when information-exchange clauses will be added to a treaty. A simple model with two asymmetric countries and repeated interactions among governments is used. The paper shows that no information exchange clause may be added to a tax treaty when there is a reciprocity requirement, when there is a high cost of negotiation, when there is a cost of providing information, or with one-way capital flows. It is also shown that an information clause increases the gains from a tax relief treaty, but may make it less sustainable.

Available at SSRN: http://ssrn.com/abstract=261971