Technical Explanation of Protocol Amending the Convention…Mutual Assistance Tax Matters (OECD) signed May 27, 2010

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DEPARTMENT OF THE TREASURY
TECHNICAL EXPLANATION OF THE PROTOCOL
AMENDING THE CONVENTION ON MUTUAL ADMINISTRATIVE ASSISTANCE IN
TAX MATTERS

This is a Technical Explanation of the Protocol signed on May 27, 2010 (the “Protocol”)
to the Convention on Mutual Administrative Assistance in Tax Matters (the “existing
Convention”), which was signed by the United States in 1989 and ratified in 1991. The
Explanatory Report accompanying the existing Convention was drafted by the Council of Europe
and the Organization for Economic Co-operation and Development (the “OECD”). At the time
of signature of the Protocol, Azerbaijan, Belgium, Denmark, Finland, France, Iceland, Italy, the
Netherlands, Norway, Poland, Sweden, the United Kingdom, and Ukraine, along with the United
States, were parties to the existing Convention. Canada, Germany, and Spain had signed the
existing Convention but had not ratified it. Drafting of the Protocol was carried out by the
Coordinating Body of the Convention, consisting of Parties to the Convention, in joint session
with an Ad Hoc Committee for Revision of the Convention open to the member states of the
Council of Europe and of the OECD. The United States was actively involved in the process of
drafting the Protocol and its accompanying Explanatory Report.

This Technical Explanation is the United States Treasury Department’s official guide to
the Protocol. It reflects the United States’ understanding of the meaning and application of
particular provisions of the Protocol. The United States accepts the Protocol’s accompanying
Explanatory Report.

Neither the Protocol nor the existing Convention affects substantive rules of taxation.
They are solely concerned with mutual assistance in the administration of the tax laws of
signatory States. The Protocol is currently in force for the countries that have signed and ratified
it. As of January 16, 2014, a total of sixty-three countries, including the United States, have
signed the Protocol. The process of ratification has been completed in thirty-four countries.

The amendments contained in the Protocol bring the existing Convention into closer
conformity with current internationally agreed standards, which are also reflected in the OECD’s
Model Tax Convention on Income and Capital (the “OECD Model”) and the 2006 U.S. Model
Income Tax Convention (the “U.S. Model”). The amendments also open the existing
Convention to countries which are not members of the OECD or of the Council of Europe and
specify the level of detail to be provided in a request for information. Finally, two procedural
issues are addressed in the Protocol: the entry into force and date of effect of the amendments;
and the relationship between the Protocol and the existing Convention.

Article I

Article I amends the Preamble of the existing Convention. Paragraph 1 deletes the
reference in the Preamble of the existing Convention providing that States should not carry out
measures or supply information except in conformity with their domestic law and practice.

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Paragraph 2 adds a recital to the Preamble of the existing Convention noting that a new
cooperative international information exchange environment has emerged, and that in this
context it is desirable for a multilateral instrument for information exchange to be made available
to the widest number of States to obtain the benefits of this new environment.

Article II

Article II amends Article 4 (General provisions) of the existing Convention. New
paragraph 1 of Article 4 requires the Parties to exchange any information that is foreseeably
relevant for the administration or enforcement of their domestic laws concerning the taxes
covered by the existing Convention. Article II deletes paragraph 2 of Article 4 of the existing
Convention, which required prior authorization by a jurisdiction supplying information in order
for the information being supplied to be used as evidence before a criminal court. These
revisions bring the existing Convention into closer conformity with the U.S. and OECD Models.

Article III

Article III amends Article 18 (Information to be provided by the applicant state) of the
existing Convention. The existing Convention specifies the details that the applicant State must
provide to the requested State when making a request for information. In some situations, the
name of the person under examination is not known to the applicant State, but other information
sufficiently identifies the person. Paragraph 1 of Article III amends paragraph 1.b of Article 18
to provide that a requesting State may provide the name, address or any other identifying
particulars of the person in respect of whom the request is made. Paragraph 2 of Article III is a
conforming change to the Protocol to address deletions to the existing Convention made by
Article IV of the Protocol (described below).

The Explanatory Report accompanying the Protocol explains that the existing Convention
was amended in this regard to clarify that the more details the applicant State can provide, the
better the information it receives is likely to be. Paragraph 1.b of Article 18 of the existing
Convention as modified by the Protocol asks the applicant State to provide the requested State
with all available information which can assist in identifying the person, but the details provided
need not necessarily include a name and address and the details may identify an ascertainable
group or category of persons. As noted in the Explanatory Report accompanying the Protocol,
however, this provision does not mean that Parties can engage in fishing expeditions.

Article IV

Article IV deletes Article 19 (Possibility of declining a request) of the existing
Convention, the body of which appears in revised but substantially similar form at subparagraph
2( g) of Article 21 (Protection of persons and limits to the obligation to provide assistance) of the
existing Convention as amended by Article V of the Protocol (described below).

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Article V

Article V deletes and replaces Article 21 (Protection of persons and limits to the
obligation to provide assistance) of the existing Convention. Article 21 relates to the protection
of the rights or safeguards of persons and the limits of a State’s obligation to provide assistance
to another State. The changes bring Article 21 of the existing Convention into closer conformity
with the U.S. and OECD Models.

Paragraph 1 of Article 21

New paragraph 1 of Article 21 is a restatement of paragraph 1 of Article 21 of the
existing Convention. This paragraph provides that nothing in the Convention as amended by the
Protocol shall affect the rights and safeguards secured to persons by the laws or administrative
practice of the requested State.

Subparagraph 2(a) of Article 21

New subparagraph 2(a) of Article 21 restates subparagraph 2(a) of Article 21 of the
existing Convention, which provides that, except in the case of Article 14 (Time limits), the
provisions of the Convention as amended by the Protocol shall not be construed so as to impose
on the requested State the obligation to carry out measures at variance with its own laws or
administrative practices ( or the laws or administrative practices of the applicant State). This rule
is equivalent to subparagraph 3(a) of Article 26 (Exchange of Information and Administrative
Assistance) of the U.S. Model.

Subparagraph 2(b) of Article 21

Subparagraph 2(b) of Article 21 of the existing Convention refers to cases where a State
considers that certain measures would be contrary to public policy (ordre public) or to its
essential interests. New subparagraph 2(b) limits the exceptions to carrying out measures that
would be contrary to public policy and removes the reference to “its essential interests.”

Subparagraph 2(c) of Article 21

New subparagraph 2(c) of Article 21 restates subparagraph 2(c) of Article 21 of the
existing Convention. New subparagraph 2(c) provides that, except in the case of Article 14
(Time limits), the provisions of the Convention as amended by the Protocol shall not be
construed so as to impose on the requested State the obligation to supply information which is
not obtainable under its own laws or its administrative practices (or under the laws of the
applicant State or its administrative practices). This rule is equivalent to subparagraph 3(b) of
Article 26 of the U.S. Model. The Explanatory Report accompanying the Protocol explains that
the reciprocity provided for in subparagraphs 2(a) and 2(c) establishes a kind of minimum
position whereby the requested State is not obliged to do more in providing assistance than the
applicant State can do under its domestic law. Moreover, the requested State need supply no
more information than is the normal practice for that State.

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Subparagraph 2(d) of Article 21

New subparagraph 2(d) of Article 21 largely restates subparagraph 2(d) of Article 21 of
the existing Convention. New subparagraph 2(d) provides that the provisions of the Convention
as amended by the Protocol shall not be construed so as to impose on the requested State the
obligation to supply information which would disclose any trade, business, industrial,
commercial or professional secret or trade process, or information the disclosure of which would
be contrary to public policy (ordre public). The prior reference to “its essential interests” is
omitted from new subparagraph 2(d). This rule is equivalent to subparagraph 3(c) of Article 26
of the U.S. Model.

Subparagraph 2(e) of Article 21

New subparagraph 2(e) of Article 21 restates subparagraph 2(e) of Article 21 of the
existing Convention. New subparagraph 2(e) provides that except in the case of Article 14
(Time limits), the provisions of the Convention as amended by the Protocol shall not be
construed so as to impose on the requested State the obligation to provide administrative
assistance if and insofar as it considers the taxation in the applicant State to be contrary to
generally accepted taxation principles, the provisions of a convention for avoidance of double
taxation, or any other convention which the requested State has concluded with the applicant
State. The Explanatory Report accompanying the Protocol suggests that consultation between
the Parties should take place whenever there is some doubt as to whether the taxation in the
applicant State is of such kind as to justify a refusal under the provisions of subparagraph 2(e).

Subparagraph 2(f) of Article 21

New subparagraph 2(f) of Article 21 restates subparagraph 2(f) of Article 21 of the
existing Convention to clarify that the obligation to exchange information provided therein does
not impose the obligation to provide administrative assistance in cases where the administrative
assistance is requested to administer or enforce tax laws of the applicant State that discriminate
between a national of the requested State and a national of the applicant State in the same
circumstances. The Explanatory Report accompanying the Protocol provides that subparagraph
2(f) relates to an exceptional circumstance and is intended to ensure that the Convention as
amended by the Protocol does not result in discrimination between nationals of the requested
State and identically placed nationals of the applicant State. The exception for the application of
Article 14 ensures that the limitation on the exchange of information included by subparagraph
2(f) does not apply in a case where the requested State is allowed to gather and supply
information to the applicant State even though the requested State could not do so for its own tax
purposes because the statute of limitations is closed for domestic tax purposes.

Subparagraph 2(g) of Article 21

New subparagraph 2(g) is based on the wording of Article 19 (Possibility of declining a
request) of the existing Convention. It clarifies that a Party need not provide administrative
assistance if the applicant State has not pursued all reasonable measures available under its
domestic laws or administrative practice prior to making the request, except where recourse to

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such measures would give rise to disproportionate difficulty. Paragraph 2(g) is consistent with
paragraph 9(a) of the Commentary to Article 26 of the OECD Model, and is also reflected in
many tax information exchange agreements concluded by the United States and the OECD
Model Tax Information Exchange Agreement.

Subparagraph 2(h) of Article 21

New subparagraph 2(h) allows a Party to the Convention as amended by the Protocol to
refuse to provide assistance in tax recovery in cases where the administrative burden for that
Party is clearly disproportionate to the benefit to be derived by the applicant State.

Paragraph 3 of Article 21

New paragraph 3 of Article 21 provides that when information is requested by a Party in
accordance with this Article, the requested State is obligated to use its information gathering
measures to obtain the requested information as if the tax in question were the tax of the
requested State, even if that Party has no direct tax interest in the case to which the request
relates. The Explanatory Report accompanying the Protocol defines “information gathering
measures” as laws and administrative or judicial procedures that enable a State to obtain and
provide the requested information. In the absence of such new paragraph 3, some taxpayers have
argued that paragraph 2(a) prevents a Party from requesting information from a bank or fiduciary
that that Party does not need for its own tax purposes. This paragraph clarifies that paragraph 2
does not impose such a restriction and that a Party is not limited to providing only the
information that it already has in its own files. This new paragraph conforms to the analogous
provision in the U.S. and OECD Models.

Paragraph 4 of Article 21

New paragraph 4 of Article 21 provides that a requested State may not decline to supply
information solely because the information is held by financial institutions, nominees or persons
acting in an agency or fiduciary capacity, or because it relates to ownership interests in a person.
Thus, paragraph 4 effectively prevents a Party from relying on the provisions of the Convention,
and in particular the provisions of paragraphs 1 and 2 of Article 21, to claim that its domestic
bank secrecy laws (or similar legislation relating to disclosure of financial information by
financial institutions or intermediaries) override its obligation to provide information under
paragraph 1. This new paragraph conforms to the analogous provision of the U.S. and OECD
Models.

Article VI

Article VI deletes and replaces paragraphs 1 and 2 of Article 22 (Secrecy) of the existing
Convention. The purpose of these amendments is to bring the confidentiality rules of the
existing Convention regarding exchanged information and the limitations regarding the use of
such information into conformity with the U.S. and OECD Models.

Paragraph 1 of Article 22

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New paragraph 1 of Article 22 provides that any information obtained by a Party under
this Convention shall be treated as secret in the same manner as information obtained under the
domestic laws of that Party, and, to the extent needed to ensure the necessary level of protection
of personal data, in accordance with the safeguards which may be specified by the supplying
Party (requested State) as required under its domestic law. The Explanatory Report
accompanying the Protocol provides that respect for the confidentiality of information is a
corollary of the powers of tax authorities and is necessary to protect the legitimate rights of
taxpayers. Mutual assistance between tax administrations is therefore possible only if each
administration is assured that the other administration will treat with proper confidence the
information which it obtains in the course of their cooperation.

The Explanatory Report accompanying the Protocol also explains that this provision is
intended to ensure that a Party receiving information shall treat the information as secret in
compliance not only with its own domestic law, but also with safeguards that may be required to
ensure data protection under the domestic law of the supplying Party. However, specification of
the safeguards may not be necessary if the supplying Party is satisfied that the Party receiving
information ensures the necessary level of data protection with respect to the data being supplied.
In any case, these safeguards should not go beyond what is needed to ensure data protection.

The United States strictly observes its domestic confidentiality laws, which ensure high
levels of protection of personal data. When acting as a requested State, the United States will
supply information only to the extent the applicant State observes the secrecy obligations under
Article 22 of the revised Convention and, to the extent needed to ensure the necessary level of
protection of personal data, U.S. domestic confidentiality laws.

Paragraph 2 of Article 22

New paragraph 2 of Article 22 provides that information received may be disclosed only
to persons, including courts and administrative or supervisory bodies, concerned with the
assessment, collection, or recovery of, the enforcement or prosecution in respect of, or the
determination of appeals in relation to, the taxes imposed by a Party. The information may be
used only by these persons and only in connection with the specified functions. Information may
also be disclosed to legislative bodies, such as, in the case of the United States, the tax-writing
committees of Congress and the Government Accountability Office, engaged in the oversight of
the preceding activities. Information received by these bodies must be for use in the
performance of their role in overseeing the administration of the tax law of the Party in question.
Information received may be disclosed in public court proceedings or in judicial decisions
relating to the taxes imposed by a Party. Paragraph 2 of Article 22 generally conforms to the
provisions of paragraph 2 of Article 26 of the U.S. and OECD Models.

Article VII

Article VII deletes and replaces paragraph 2 of Article 27 (Other international agreements
or arrangements) of the existing Convention. The purpose of the amendment is to clarify that
Parties that are Member States of the European Union can apply, in their mutual relations, the

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possibilities of assistance provided by the Convention in so far as they allow a wider cooperation
than the possibilities offered by the applicable European Union rules. This paragraph only
applies between Member States of the European Union and in no way prejudices the application
of the Convention between member States of the European Union and other Parties to the
Convention.

Article VIII

Article VIII amends Article 28 (Signature and entry into force of the Convention) of the
existing Convention by adding four new paragraphs. The primary purpose of the new
paragraphs is to allow any country to request to be invited to sign and ratify the Convention as
amended by the Protocol, thereby becoming a Party thereto. Article VIII also makes a related
amendment to Article 30 (Reservations).

Paragraph 4 of Article 28

New paragraph 4 of Article 28 provides that any member State of the Council of Europe
or any member country of the OECD that becomes a Party to the Convention after the Protocol
enters into force shall be considered a Party to the Convention as amended by the Protocol,
unless they express a different intention in a written communication to one of the Depositaries
(the Council of Europe and the OECD).

Paragraph 5 of Article 28

New paragraph 5 of Article 28 provides that after the Protocol has entered into force, any
State that is not a member of the Council of Europe or the OECD may request to be invited to
become a Party to the Convention as amended by the Protocol. Such requests shall be directed to
one of the Depositaries. The decision to invite States that have made such a request shall be
taken by consensus by the Parties to the Convention as amended by the Protocol through the
Coordinating Body.

New paragraph 5 provides that with respect to any State that, in accordance with this
paragraph, ratifies the Convention as amended by the Protocol, the Protocol shall enter into force
on the first day of the month following the expiration of a three month period after the date that
that State has deposited its instrument of ratification with one of the Depositaries.

Paragraph 6 of Article 28

New paragraph 6 of Article 28 provides rules for the effective dates of the provisions of
the Protocol. The amendments shall have effect for administrative assistance related to taxable
periods beginning on or after January 1 of the year following the year in which the Convention
as amended by the Protocol entered into force in respect of a Party, or where there is no taxable
period, for administrative assistance related to charges to tax arising on or after January 1 of the
year following the year in which the Convention as amended by the Protocol entered into force
in respect of a Party. Any two or more Parties may mutually agree that the Convention as

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amended by the Protocol may have effect for administrative assistance related to earlier taxable
periods or charges to tax.

Paragraph 7 of Article 28

New paragraph 7 of Article 28 provides that notwithstanding new paragraph 6 of that
Article, for criminal tax matters, the Convention as amended by the Protocol shall have effect for
any earlier taxable period or charge to tax, from the date of entry into force in respect of a Party.

Subparagraph 1(f) of Article 30

New subparagraph 1(f) of Article 30 (Reservations) provides that, in relation to new
paragraph 7 of Article 28, a P arty may nevertheless lodge a reservation according to which the
provisions of the amended Convention will have effect for administrative assistance related to
criminal tax matters only as related to taxable periods beginning from the third year prior to the
year in which the Convention as amended by the Protocol entered into force in respect of that
Party.

Article 30 of the existing Convention provides that States may make reservations with
respect to several specified aspects of the Convention. The United States made several
reservations to the existing Convention, which were contained in its instrument of ratification
deposited on February 13, 1991, with the Depositories to the Convention. The Protocol to the
existing Convention does not affect the United States’ reservations to the existing Convention.

Article IX

Article IX provides rules for the entry into force of the Protocol. The Protocol shall enter
into force on the first day of the month following the expiration of a period of three months after
the date of ratification by five parties to the existing Convention. A P arty which ratifies the
Protocol after the Protocol has entered into force will be bound by the Protocol beginning on the
first day of the month following the expiration of a period of three months after the date of
deposit of its instrument of ratification.

Article X

Article X of the Protocol describes the functions of the two Depositaries of the
Convention: the Council of Europe and the OECD. Article X provides that when an act,
notification, or communication has been accomplished with a Depositary, that Depositary shall
notify the other Depositary, the member States of the Council of Europe, the member countries
of the OECD, and any Party to the Convention as amended by this Protocol of: any signature, the
deposit of any instrument of ratification, acceptance or approval, any date of entry into force of
the Protocol, and any other act, notification, or communication relating to the Protocol.