Discover the Keys to International Taxation: DTA vs. TIEA and the Andorra-Spain Case
In a globalized environment, understanding the mechanisms of international taxation is essential for both individuals and businesses. Two fundamental tools in this area are Double Taxation Agreements (DTA) and Tax Information Exchange Agreements (TIEA). These two types of agreements are often confused with each other when they actually operate in different areas. Let’s look at the key differences between these two types of agreements and their relevance in international taxation, with a special focus on the information exchange clause in the DTA between Andorra and Spain.
Tax Information Exchange Agreements (TIEA)
TIEAs are agreements that allow countries to share relevant tax information to combat tax evasion and avoidance. These agreements do not focus directly on taxation but on transparency and international cooperation to ensure that taxpayers meet their tax obligations.
This type of agreement has been signed with countries with which there is no DTA and mainly with countries listed as tax havens, with the aim of having these countries become considered “collaborators” and thus be removed from these lists.
Double Taxation Agreements (DTA)
DTAs are bilateral or multilateral agreements between countries that are much broader in scope, and their main objective is to avoid the same income being taxed in two different tax jurisdictions. This type of agreement is crucial to promoting international trade and investment as it provides legal certainty to taxpayers by clarifying which country has the right to tax certain income.
Most signed agreements follow the guidelines set by the OECD (and residually by the UN). The most modern agreements almost all include a specific information exchange clause (also called “mutual assistance”). In practical terms, the effect would be similar to having a TIEA included within the DTA.
The way this information exchange is articulated does contemplate various possible forms, and it will depend on the agreement reached by each country to determine how this information exchange will occur. Some agreements provide for more automatic information exchange, others for a prior request procedure, or a combination of both.
Administrative Agreements on Information Exchange
This third type of agreement, which we could consider as a lower category, is negotiated directly by the Tax Administrations of each country (as they do not have the status of an international treaty). They are generally signed with countries with which there is already a DTA to finalize the practical mechanisms of this cooperation.
Information Exchange Clause in the DTA between Andorra and Spain
The DTA between Andorra and Spain is a fairly recent agreement (2015) and, therefore, has been drafted following the most modern convention models. It includes, in its article 24, a specific information exchange clause that allows the tax authorities of both countries to exchange relevant information for the enforcement of national tax laws. This clause facilitates cooperation in the fight against tax evasion and avoidance and ensures that taxpayers do not use complex structures to avoid paying taxes.
For example, if the Spanish Tax Agency suspects that a Spanish tax resident is using an account in Andorra to conceal income, it can request detailed information about that account from the Andorran authorities. This request must be duly justified and follow the procedures established in the agreement to ensure the protection of personal data and confidentiality.
The DTA between Andorra and Spain, with its information exchange clause, is an example of how these agreements can work together to ensure tax compliance and promote transparency. Understanding these tools and their practical application is essential for any professional operating in the field of international taxation, providing a solid foundation for adequately advising clients and contributing to regulatory compliance and tax optimization.
How does this system benefit the taxpayer?
The fact that the information exchange procedure is fixed in the DTA provides legal certainty to the taxpayer and the peace of mind of knowing that if a residence conflict or a tax inspection occurs in one of the two countries requiring information from the other, there is a pre-established mechanism that orders this procedure. It ensures that an administration will not be able to act and request information by any means but by those expressly established in the Agreement.
Recently, there have been rulings such as that of the Central Economic-Administrative Court (Resolution of February 22, 2024, Chamber 1), which makes it clear that the Tax Administration must refer to the mechanisms established in the DTA and cannot attempt to directly request a non-resident person or entity directly if there is no tax link.
Other information exchange mechanisms
In upcoming blogs, we will talk about other systems complementary to the DTA, through which information exchange systems are established following international standards of CRS, BEPS, and MICA regulations, which have also been signed by Andorra and through which the signatory countries exchange certain tax information automatically.
