The “foreseeable relevance” of the information under article 26 of OECD Model Convention.

Di Guglielmo Fransoni -

(Comment to Federal Swiss Tribunal, 24.10.2015)

If this were a fairy tale, it would certainly begin as all fairy tales do: Once upon a time.

Indeed, some of the statements contained in this judgment of the Federal Court of Switzerland provide a very clear evidence of the change that, in the last decades, has occurred in the attitude towards the exchange of information.

But let’s proceed in an orderly way.

As it is well known, since 29 April 2000 the first paragraph of article 26 of the OECD Model Convention has been amended so that the object of the exchange of information is no longer the «information as is necessary for carrying out the provisions of this Convention» but the «information as is foreseeably relevant […]».

Since the Commentary to the previous version clearly stated that “necessary” could be replaced by “relevant” (see par. 5 of the Commentary to article 26, 1995 Model Convention) it could be easily argued that the addition of “foreseeably” (as a qualification of the information’s relevance) was aimed at narrowing the instances where the information could be exchanged.

Not surprisingly then, paragraph 1 of the Commentary (in its current version) states that the formula has been carefully chosen to show, at the same time, that the exchange of information should be granted the widest possible extent but not to the point where it would result into a “fishing expedition”.

As a matter of fact, the wording of the Commentary displays the ability of a tightrope walker continuously balancing itself between the necessity of not exceeding either in the extension or in the restriction of the duty of one State to comply with the requests of the other one.

However, the following passage in the Commentary clearly shows that the “requested State” has the right to scrutinize the “foreseeability” of the relevance «the requested State may not decline a request […] because it believes that the request lacks of relevance […]. Where the requested States becomes aware of facts that call into question whether part of the information is foreseeably relevant […] the requested State should ask the requesting State to clarify […]».

There is a difference in the position of the requested State between the case where it simply “believes” and that in which it “is aware of fact”: while the mere belief [of the lack of foreseeable relevance] does not provide a sound reason for withholding the information requested, the “awareness” does (at least until the requesting State has not provided some “clarifications”).

The Swiss Federal Court deals – in the present judgment – with an issue which is the direct consequence of the distinction between “belief” and “awareness” and this is: how should or could this “awareness” be attained? Is there a duty of the requested State to, let’s say, “make itself aware” ex officio or, at least, comply with the taxpayers’ demands?.

The answer to these questions is very straightforward although quite delusive for the taxpayer.

According to the Court the said awareness may exist only where there is a «fait notoire» showing the lack of relevance at first glance («d’emblée»).

This conclusion is grounded upon a peculiar notion of “good faith”.

The Court, in fact, underlines that the interpretation of international conventions is governed by the principle of “good faith” according to which it should be given preference, amongst a plurality of meanings which can be given to a provision of the treaty, to the meaning which grants the effectiveness of such provision.

Having made this statement, the Court reaches the conclusion that, according to this principle, «with regards to the exchange of information, this means that the requested State should not, in principle, raise doubts about the reasons of the requesting State».

This argument forms, so to say, the backbone of the whole judgement. More than once, in fact, the Court remarks that «Assuming that the [requested State] is under the obligation to check whether the allegations [of the requesting State] are not just “formal” amounts to doubting of the good faith [of the requesting State]» while, on the contrary, there is a presumption of the good faith of the other State which can be superseded only by “solid evidence”.

Going back to the question which the Court was facing, the answer is, as anticipated, very clear: not only the requested State is under no obligation to “become [actively] aware” of facts that call into question the foreseeability of the relevance of the information required, but, following this line of reasoning, it is under duty to refrain from questioning the good faith of its counterpart.

Now, it should be apparent that the argument upon which this conclusion is reached is far from being a strong one.

Applying the principle of “good faith” in the interpretation of a treaty is, indeed, something very different from presuming the “good faith” of the State which invokes the application of the treaty and there is no room for deriving that presumption from the first principle.

Therefore, it would be very hard to endorse the Court’s judgement according to motives that it provides for reaching its conclusions.

The truth is, however, that such conclusions are grounded upon a rationale which is undisclosed and almost unconfessed, but, nevertheless, much stronger and this is the “death” of the so-called “revenue rule”.

Underlying Lord Mansfield’s dictum that «no state ever takes notice of the revenue rules of another» (Holmes v. Johnson, 1774) there was the assumption that the opposite attitude would endanger each State taxpayers and, therefore, the vital interests of such State.

In a globalized world this principle cannot be followed any more. The taxpayer’s interests are the taxpayer’s own business and the Federal Court states this very clearly saying that « It is the taxpayer’s duty […] to complain with the competent authorities». On the contrary, all States have a common general interest in avoiding tax evasion and they must, therefore, act accordingly by supporting one another.

Lord Mansfield statement is just (at least for the time being) an old story to be told by grandparents to their grandchildren beside the fireplace … “Once upon a time”.

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