4.60.1  Exchange of Information

The following section deals with the exchange of information between the US and foreign countries.

4.60.1.1  (01-01-2002)
Exchange of Information Overview

  1. Exchange of Information articles are found in US tax treaties and Tax Information Exchange Agreements (TIEAs). While TIEAs are not treaties, they are essentially the same as tax treaties for purposes of the discussion of Exchange of Information that follows.

  2. Exchange of Information articles generally consist of three provisions:

    1. A general obligation on the part of the competent authorities to exchange information for purposes of carrying out the provisions of the treaty or the domestic laws pertaining to the taxes covered by the treaty;

    2. Restrictions on the use and disclosure of information received. These restrictions generally require that information received be treated as secret and permit disclosure of such information only to persons specified by the treaty as concerned with the taxes covered by the treaty; and

    3. Language which relieves the competent authorities of any obligation to provide information which:

      • is not obtainable, either by the requesting competent authority under its own laws or by the receiving competent authority;

      • would require the receiving competent authority to carry out administrative procedures at variance with its laws or those of the requesting country; or

      • would disclose trade secrets or other information contrary to public policy.

  3. TIEAs, and some treaty Exchange of Information articles, require the provision of banking and financial information notwithstanding the limitations described in item (2) above.

  4. These provisions, together with IRC section 6103(k)(4), allow the US Competent Authority and those officials who have been delegated the authority to carry out the functions of the Competent Authority under US tax treaties and TIEAs to disclose tax returns and/or tax return information to the Competent Authority of a foreign treaty partner or his or her delegates. The delegated US Competent Authority for purposes of Exchange of Information is the Director, International (LMSB).

  5. While some treaties and TIEAs may describe certain types of Exchanges of Information, they do not generally limit the form that Exchanges of Information may take. As a practical matter, however, Exchange of Information takes place either as the result of a request made by one competent authority to another or spontaneously (that is, when the information has not been specifically requested). Most Exchange of Information programs have two aspects, Incoming and Outgoing.

  6. Exchange of Information Programs

    1. Routine Exchange of Information. This is essentially a spontaneous exchange of information insofar as the information is not specifically requested by the receiving country. When a treaty or TIEA enters into force, it is generally agreed that information will be exchanged on a routine basis. It is sometimes also called Automatic Exchange of Information. In terms of the information the US provides to treaty partners through this program, it currently includes information from Forms 1042S, relating to US source fixed or determinable income paid to persons claiming to be residents of the receiving treaty country. Generally, the information IRS provides, and the information which IRS receives, consists of hundreds of thousands of records exchanged by way of magnetic media (tapes or disks). These records are processed at the Philadelphia Service Center and/or the Martinsburg Computing Center (depending on whether incoming or outgoing). The primary applications of the program are in the area of Returns Processing.

    2. Specific Exchange of Information Program. Also known as Exchange of Information upon Request, this program involves the coordination of both incoming and outgoing requests for information about specific taxpayers. Most requests result from Examination of a particular tax return, although requests may also arise from Collection activities or Criminal Investigations. Most requests, incoming and outgoing, are handled by the IRS Tax Attache′s (formerly Revenue Service Representatives). See IRM 4.30.3. However, Exchange of Information Team program analysts in the Office of Director, International (LMSB) handle incoming and outgoing requests involving Canada and France, and cases where a summons needs to be prepared to secure the information requested by a treaty partner. (Treaties generally obligate the Competent Authority to utilize the same measures to secure information for a treaty partner as they would for their own tax purposes. As a result, it is not uncommon to summon information on behalf of a treaty partner.) Most of the work done to obtain information for a treaty partner is done in IRS field offices. Information secured is transmitted to either the Exchange of Information Team or to the IRS Tax Attache′s as the case may be, who then prepares the necessary Competent Authority correspondence to legally disclose and transmit the information to the treaty partner.

    3. Spontaneous Exchange of Information. This program involves the exchange of information that has not been specifically requested, but which in the judgement of the providing Competent Authority may be indicative of noncompliance with a treaty partner's tax laws and requirements. Outgoing (US initiated) spontaneous exchanges generally begin when a Revenue Agent or International Examiner comes across information during the course of an audit. This information concerns the treaty partner's taxpayer that may be indicative of noncompliance with the treaty partner's tax laws. Spontaneous exchanges may also be generated by other IRS investigation functions including Criminal Investigation and SBSE Compliance. The information is forwarded through the appropriate field officials to the Director, International (LMSB) where it is evaluated. If appropriate for exchange, the necessary Competent Authority correspondence is prepared and the information is sent to the foreign competent authority for evaluation. Exchange of Information Team program analysts and IRS Tax Attache′s also evaluate incoming (foreign initiated) spontaneous exchange items and forward appropriate cases to IRS field offices for action. The program analysts and Tax Attache′s also follow up on the outcome of all spontaneous exchanges.

    4. Industrywide Exchanges of Information Program. These exchanges involve meetings between US and treaty partner Examination or Criminal Investigation personnel. Industrywide Exchanges of Information do not involve specific taxpayer information. Instead they are exchanges of information about trends, operating practices, pricing policies, know-how or experience, etc. in particular industries or economic sectors. Exchange of Information Team program analysts work with field personnel, IRS Tax Attache′s and foreign officials in arranging these meetings.

    5. Simultaneous Examination and Simultaneous Criminal Investigation (SCIP) Programs. These programs involve cases where the US and a treaty partner are examining (or investigating) a taxpayer or related taxpayers, with common issues. In a simultaneous or SCIP meeting, the examiners or investigators are afforded the opportunity to discuss issues, audit plans, and information needs. Exchange of Information Team program analysts work with field personnel, IRS Tax Attache′s and foreign officials to present proposals to foreign competent authorities, to evaluate proposals from foreign competent authorities, and to facilitate any exchanges of information between governments which may be appropriate for each country to complete its examination or investigation.

    6. Under the LMSB Office of Pre-Filing and Technical Guidance, the International Technical Advisors (formerly IFASP) may provide technical support with respect to the Exchange of Information Programs.

4.60.1.2  (01-01-2002)
Specific Exchange Program

  1. Also known as Exchange of Information upon Request, this program involves the coordination of both incoming and outgoing requests for information about specific taxpayers. Most requests result from examination of a particular tax return, although requests may also arise from SBSE Compliance activities or Criminal Investigations.

  2. All domestic sources of information must be exhausted before requesting assistance from abroad.

  3. Some foreign governments restrict investigative activity within their borders by other tax administrations. Hence, all exchanges of information with foreign tax administrations must occur through the US Competent Authority.

  4. Exchanges outside of competent authority channels may result in unauthorized disclosure of tax return information.

  5. The Director, International (LMSB) is the US Competent Authority and the only person authorized to exchange information with other tax authorities. The authority to sign on behalf of the Director, International (LMSB) has been delegated within the Office of the Director, International (LMSB) by Delegation Order 114.

4.60.1.2.1  (01-01-2002)
Exchangeable Information

  1. Information that may be exchanged under Tax Treaties and TIEAs includes but is not limited to:

    1. Information pertaining to processing of double taxation cases and related issues under competent authority consideration

    2. Information exchanged on a regular or routine basis (i.e. information returns filed on behalf of non-resident aliens)

    3. Information relating to a specific taxpayer or tax matter under review

    4. Information discovered during an investigation or examination where there is the potential for non-compliance with the tax law of a foreign country

    5. Changes in tax law.

4.60.1.2.2  (01-01-2002)
Confidentiality, Disclosure and Treaty Secrecy

  1. Information exchanged under the tax treaties and TIEAs is confidential under the terms of IRC section 6103 and/or section 6105, and the terms of the Tax Treaty or TIEA. The treaties require both:

    • that information received by IRS from a foreign government be treated as secret in the same manner as information obtained under the domestic laws of the US, and

    • that the information may be disclosed only to persons or authorities involved in certain specified activities in the US. Specified persons or authorities include court and administrative bodies, personnel involved in the assessment, collection or administration of the enforcement or prosecution in respect of, or the determination of appeals in relation to, taxes covered by the tax treaty or TIEA, or certain oversight bodies such as Congressional tax-writing committees or GAO.

  2. IRC section 6103 generally provides for the confidentiality of returns and return information and restricts disclosures of returns and return information.

  3. IRC section 6103(k)(4) provides that returns and return information may be disclosed to a foreign competent authority in accordance with the tax treaty or TIEA between that country and the US. Most US tax treaties and TIEAs contain articles providing for the exchange of information. Generally, the information received under a tax treaty or TIEA is treated as secret to the same extent as under US domestic law and may be disclosed only to those persons (including courts and administrative bodies) concerned with the assessment, collection, enforcement, or prosecution of taxes specified in the tax treaties or TIEAs.

  4. To caution against unauthorized disclosures, the Director, International (LMSB) will note the following on all information exchanged under a Tax Treaty or TIEA: "This information is furnished under the provisions of an income tax treaty with a foreign government. Its use and disclosure must be governed by the provisions of that treaty."

  5. Generally, a taxpayer may have access to his or her tax returns and return information. However, if a taxpayer's file contains information secured from another country under a tax treaty or TIEA, the situation is different. IRC section 6103(e)(6) provides that taxpayer return information may not be disclosed to any person if it is determined that the disclosure would seriously impair federal tax administration. Questions concerning the disclosure and use of tax treaty/TIEA information must be coordinated with LMSB Disclosure personnel and if necessary, with Counsel.

  6. Under IRC section 6103(p)(3), IRS Tax Attache′s and the Office of Overseas Operations, Exchange of Information Team (EOI) must account for disclosures of returns and return information to third parties other than those exempt under IRC section 6103(p)(3)(A), which includes disclosures to a foreign competent authority. The IRM on Disclosure of Official Information provides information on accounting for written and oral disclosures of information.

4.60.1.2.3  (01-01-2002)
Contacts with Foreign Governments

  1. No IRS employee should make direct contact with a foreign tax official without first contacting the jurisdictional IRS Tax Attache′ or the Exchange of Information team. If a foreign official directly contacts an IRS office, the IRS office should refer the contact to the IRS Tax Attache′ or the Exchange of Information Team.

  2. No information, oral or by document, should be disclosed to a foreign government outside the US Competent Authority channels. All tax related information must be formally exchanged through the established Competent Authority channels. There are no provisions for informal exchanges.

4.60.1.2.4  (01-01-2002)
US Initiated Specific Requests

  1. Document 6743, Sources of Information from Abroad, contains information on types and availability of records maintained in foreign countries. For current information, contact the jurisdictional IRS Tax Attache′ or the Exchange of Information Team.

  2. Overseas Operations, Exchange of Information (EOI) Team, LM:IN:OO:EOI, provides assistance with and information concerning records located in foreign countries. Contact the EOI Team when there is no IRS Tax Attache′ assigned to the foreign country where the records are located. Further information on the roles of the IRS Tax Attache′s, their post jurisdictions, and contact information can be found in IRM 4.30.3.

  3. Contact the IRS Tax Attache′ before requesting foreign based records to discuss the availability of the information.

4.60.1.2.4.1  (01-01-2002)
Telephone Requests

  1. A request for foreign based publicly available information may be made by telephone if it is routine, not complicated and the information can be secured within several days. The IRS Tax Attache′ will obtain the information and report back to the requester. In all cases, the IRS Tax Attache′ will determine if the request must be in writing or not.

4.60.1.2.4.2  (01-01-2002)
Written Request Format

  1. The request should be in writing if it is complex in nature, the gathering of the information will require a significant investment of time to obtain, or if a Tax Treaty/TIEA partner will be gathering the information.

  2. The request should include:

    1. The name of the taxpayer under examination or investigation

    2. The tax years involved

    3. General information about the case

    4. Location of the information

    5. Specific information needed and whether the documents secured need to be certified

    6. The name, telephone and FAX numbers of the requester

    7. The address where the reply should be mailed

    8. Any statute, court or similar dates by which the information is needed.

  3. All requests to a foreign tax authority will be approved by second level management and will be forwarded directly to the jurisdictional IRS Tax Attache′ or the Exchange of Information Team per the instructions below.

4.60.1.2.4.3  (01-01-2002)
US Initiated Request Procedures

  1. A request for information pursuant to a tax treaty or TIEA should be sent to the IRS Tax Attache′ who has jurisdiction for the country where the information is located. When no IRS Tax Attache′ has jurisdiction for the foreign country or if the request involves Canada or France, send the request to Manager, Exchange of Information Team, 950 L'Enfant Plaza South, SW, Washington, DC 20024, ATTN: LM:IN:OO:EOI, Room 4431. A program analyst of the EOI Team or the IRS Tax Attache′ will prepare a letter to the foreign tax administration requesting the needed information. Refer to the LMSB, International web site on the INTRANET for the latest IRS Tax Attache′ List of Post Jurisdictions.

  2. The request will consist of two parts. The first part is the cover memorandum which includes:

    1. The name of the taxpayer under examination or investigation

    2. The name and telephone number of the requester

    3. The address where the response should be mailed or the FAX number where the response should be faxed

    4. Any background or administrative information that should NOT be provided to the foreign tax administration

    5. Any statute, court or similar dates by which the information is needed

    6. Whether or not the request includes grand jury information

  3. The second part is an attachment on plain paper (see Exhibit 4.60.1–1 for an example), which can be forwarded to the foreign tax administration, and which includes:

    1. The name and address of the taxpayer under examination or investigation

    2. The type of tax, the tax years involved, including whether calendar or fiscal years

    3. General information about the case to establish that a tax examination or investigation is being conducted

    4. Location of the information, including an explanation why we believe that it is in the foreign country

    5. The specific information needed

    6. How the information is relevant to the examination or investigation

    7. Any statute, court or similar dates by which the information is needed

    8. Whether copies of documents secured need to be certified.

  4. The IRS Tax Attache′ or EOI program analyst assigned to the case will provide a status report on the case every 60 days. If a status report is needed sooner, the requester should contact the IRS Tax Attache′ or EOI program analyst directly.

  5. Once the information is secured, the response will be reviewed by the IRS Tax Attache′ or EOI program analyst to ensure all information requested was provided. The information will then be sent to the requester. If only a portion of the information is received, it may still be provided to the requester. This is deemed a partial reply. The IRS Tax Attache′ or EOI program analyst will follow up on the outstanding portion and will forward it upon receipt.

  6. An appraisal questionnaire will accompany the response. Within 30 days of receipt, complete and return the appraisal questionnaire to the address provided.

4.60.1.2.5  (01-01-2002)
Foreign Initiated Specific Requests

  1. Requests from Tax Treaty or TIEA partners for tax information regarding specific taxpayers are considered on a case-by-case basis and require:

    1. Specific identification of the taxpayer

    2. Itemized list of specific information requested

    3. Detailed narrative identifying the tax nexus or relevance of the information sought to the taxpayer and issues examined

    4. An explanation of how the request for transactions, facts or documents pertains to a tax or a tax liability covered by the Tax Treaty or TIEA.

  2. The case will include a checklist that is to be completed on each incoming request to ensure that the foreign request meets IRS criteria.

4.60.1.2.5.1  (01-01-2002)
Foreign Initiated Requests Procedures

  1. The following subsections provide specific procedures for the various IRS Operating Divisions and functions.

4.60.1.2.5.1.1  (01-01-2002)
Procedures for SBSE and LMSB Cases

  1. The IRS Tax Attache′ or EOI program analyst will forward foreign initiated requests to the appropriate office for action.

  2. Under the Memorandum of Understanding (MOU) between LMSB and Small Business Self-Employed Division (SBSE), the IRS Tax Attache′ or the EOI program analyst will forward the case as follows:

    • Cases involving LMSB entities and issues will go to LMSB, International Territory Managers for assignment and control to an International Examiner (IE) or a Revenue Agent (RA)

    • Cases involving SBSE entities and issues will go to the SBSE Compliance Area Directors for assignment and control (to SBSE, or to LMSB if deemed appropriate) to a Revenue Agent (RA)

  3. Upon receipt by the Field Office, the manager will confirm receipt with the IRS Tax Attache′ or the EOI program analyst and provide the assignment information, including contact numbers and the name of the RA or IE assigned to the case.

  4. The RA or IE will obtain the requested information within 60 days from the date of the transmitting memorandum. If unable to meet this deadline, the RA or IE will contact the IRS Tax Attache′ or EOI program analyst to provide a status report and the estimated completion date.

  5. If it is determined that a summons is needed after the case assignment, contact the IRS Tax Attache′ or the EOI program analyst for assistance with summons preparation.

  6. Once secured, the information will be forwarded to the IRS Tax Attache′ or the EOI program analyst. The SBSE RA will also send a copy to the Director, Compliance Area, for their territory, if requested. If any of the information should not be disclosed to the tax treaty /TIEA partner, include a written recommendation stating the reason that the information should not be disclosed.

  7. The IRS Tax Attache′, on behalf of the US Competent Authority, will forward the information to the foreign competent authority. If the information is not provided, the IRS Tax Attache′ will provide the foreign competent authority the reason the information could not be provided. Cases assigned to the EOI Team will be cleared through proper channels for signature of the Competent Authority and subsequent forwarding to the foreign competent authority.

  8. Foreign Initiated requests for information do not necessarily require the opening of an examination. The facts and circumstances of each situation should dictate whether there is a need for an examination. However, if a US examination is opened, please advise the EOI Team.

4.60.1.2.5.2  (01-01-2002)
Counsel Involvement

  1. A summons may be required in cases where the taxpayer or third party refuses to provide the information requested by Tax Treaty or TIEA partners. Associate Counsel International will provide guidance on issuance and enforcement of summonses. They will also assist local Counsel Offices in matters involving summonses.

  2. Summonses are routinely required in cases involving bank or financial organization records.

  3. Summonses are not routinely issued, unless otherwise specified, and are authorized only where the information can not be obtained otherwise.

  4. Summonses pertaining to requests from Tax Treaty or TIEA partners can only be prepared by the IRS Tax Attache′ or the EOI Team program analyst assigned to the request. These summonses require approval of the office of the Associate Chief Counsel International. Please contact the designated IRS Tax Attache′ or EOI program analyst immediately if a summons appears warranted.

4.60.1.2.5.3  (01-01-2002)
Trade Secrets

  1. Generally, tax treaties and TIEAs provide for the nondisclosure of any trade, business, industrial, commercial or professional secret or process. In the event there is a disagreement between the IRS and a third party on whether the information secured is a protected trade secret or process,etc., the third party should follow the procedures in Rev.Proc. 77–16, 1977–1 CB 573 as amplified by Rev. Proc.79–32, 1979–1 CB 599. These procedures provide guidance for requesting assistance from the US Competent Authority to determine the availability to a US taxpayer of benefits and safeguards provided under the income tax treaties. Tax examinations in progress will continue while the request is being considered, unless the Competent Authority directs otherwise.

4.60.1.2.6  (01-01-2002)
Grand Jury Cases

  1. Information from a US grand jury may be furnished to the respective Competent Authority for tax administration purposes under a Rule 6(e) order. The tax treaty partner will be required to meet the requirements of showing a particularized need for the information that is sought preliminarily to or in connection with a judicial proceeding.

4.60.1.3  (01-01-2002)
Simultaneous Examination Program (SEP)

  1. The Simultaneous Examination Program (SEP) operates through the exchange of information provisions of income tax treaties and TIEAs. The program is coordinated through the US Competent Authority, which is the Director, International (LMSB). Simultaneous examinations may be carried out pursuant to written Working Arrangements entered into by the Director, International (LMSB) and the Competent Authorities of one or more of our Tax Treaty or TIEA partners. This program is designed to facilitate the exchange of information between the US and its treaty partners.

    Note:

    Currently, the US has Working Arrangements with Australia, Canada, France, Germany, Italy, Korea, Japan, Mexico, Norway, Philippines, Sweden and the United Kingdom.

4.60.1.3.1  (01-01-2002)
Purpose, Objectives and Benefits

  1. Simultaneous Examinations involve the US and one of more of its Tax Treaty or TIEA partners conducting separate, independent examinations of the taxpayer or a related taxpayer within their jurisdiction. The purpose of the simultaneous examination is to determine the correct tax liabilities of the taxpayer and/or related entities. The objective is to facilitate exchanges of information and to mutually secure other tax compliance benefits. The compliance benefits which may result from a simultaneous examination include:

    1. The assessment of tax based on a more complete factual development of the circumstances pertaining to the tax liability;

    2. The exchange of information on apparent tax avoidance techniques or patterns;

    3. The exchange of information on tax haven transactions;

    4. The exchange of information on cost sharing arrangements;

    5. The exchange of information on profit allocation methods in special fields such as global trading and new financial instruments;

    6. A more thorough understanding of multinational business practices, complex transactions, and examination issues that may be particular to an industry or group of industries; and

    7. The identification of noncompliance trends in a market segment.

  2. A simultaneous examination may also enable examiners to build more complete factual evidence for tax adjustments for which the Mutual Agreement Procedure might be requested. A simultaneous examination may also enable taxpayers to make a request for Competent Authority consideration at an earlier stage than might otherwise have been the case.

    Note:

    A simultaneous examination is not a substitute for the Mutual Agreement Procedure (MAP).

4.60.1.3.2  (01-01-2002)
Basis for a SEP

  1. As noted above, SEP operates pursuant to the exchange of information provisions of tax treaties and TIEAs. The program is coordinated through the US Competent Authority. Simultaneous examinations are carried out according to written Working Arrangements entered into by the Director, International (LMSB), who is the US Competent Authority, and the competent authority of certain of our Tax Treaty or TIEA partners.

  2. The absence of a Working Arrangement should not prevent examiners from recommending cases which are otherwise suitable for simultaneous examination with a Tax Treaty or TIEA partner. In such instances, the Director, International (LMSB) will concurrently propose to the Tax Treaty or TIEA partner both the conclusion of a Working Arrangement and the conduct of a simultaneous examination.

  3. While simultaneous examinations are most often conducted on a bilateral basis, a multilateral simultaneous examination is possible in cases where these is a legal basis for the exchange of information between all of the potential participating countries.

    Note:

    As an example, a multilateral examination involving Country A, Country B, Country C and the US, or any combination of those countries, is possible when all of these countries have income tax treaties with each other.

    Note:

    REMINDER: In cases where the US has income tax treaties or TIEAs with two or more potential participating countries which do not have exchange of information provisions among themselves, parallel bilateral simultaneous examinations may still be possible. Contact the Simultaneous Examination Program (SEP) program analyst for other possible cooperative exchange efforts.

  4. Specific exchanges of information between the US and Tax Treaty or TIEA partners are conducted on a bilateral basis according to the applicable income tax treaty or TIEA. The US will not provide information received from one Tax Treaty partner to another, either in the framework of a bilateral simultaneous examination or in a multilateral simultaneous examination. This would violate the secrecy provisions of the Tax Treaty or TIEA with the country providing the information.

4.60.1.3.3  (01-01-2002)
SEP Recommendations Criteria

  1. While the taxpayers selected for simultaneous examination are often large multinational corporations whose US income tax returns fall within Coordinated Industry cases, simultaneous examinations may also involve corporations not within the scope of the Coordinated Industry Case Program and noncorporate entities, including individuals and partnerships.

  2. Cases considered for simultaneous examination may involve, but are not limited to:

    1. A taxpayer or related taxpayers with business transactions or a business nexus in the participating countries;

    2. Operations by the taxpayer or related group of taxpayers which are significant in scale, either worldwide or within the participating countries;

    3. An issue or issues which would be relevant to the participating countries in one or more compatible years. These issues may include, for example, transfer pricing practices, potential international tax avoidance techniques, and potential noncompliance trends in a market segment; or

    4. A potential for mutual benefit to be gained by the tax administrators of the participating countries.

4.60.1.3.4  (01-01-2002)
SEP Proposal and Acceptance Procedures

  1. Proposals for simultaneous examination may be initiated by either the US or a tax treaty or TIEA partner. The Competent Authority of the initiating country transmits its proposal in writing to the other Competent Authority. The proposing Competent Authority will set forth the criteria used in deciding to propose the case along with such other available information as may be useful to the receiving Competent Authority (e.g. information about the taxpayer's business organizational structure, functions, products, intangible assets, etc.).

4.60.1.3.5  (01-01-2002)
US Initiated Proposals

  1. US recommendations for a simultaneous examination will be prepared using the format shown in Exhibit 4.60.1–2, approved by second level management, and will be forwarded to the following:

    Manager, Exchange of Information Team
    950 L'Enfant Plaza South, SW
    Washington, DC 20024
    ATTN: LM:IN:OO:EOI:SEP

  2. Parts I, II and III of the format shown in Exhibit 4.60.1–2 will be transmitted by the Director, International (LMSB) to the foreign Competent Authority. Parts II and III of the format call for written narrative and are not limited to any specific length. Information within the parentheses is intended to provide assistance to the examiner when preparing the narrative section of the format proposal. The directive information within the parentheses need not be included in the field's recommendation sent to the Manager, Exchange of Information Team.

  3. The Director, International (LMSB), as US Competent Authority, will send the proposal to the foreign Competent Authority along with an appropriate transmittal letter. Within the transmittal letter to recommend the simultaneous examination, the field should include the name of the manager who will function as the US Competent Authority's Designated Representative should the simultaneous examination be accepted. (This will generally be the Team Manager.) When a response is received, the Director, International (LMSB) will advise the field.

  4. Foreign Competent Authorities generally consider proposals for a simultaneous in conjunction with any information they already have and the potential benefits that may be gained from a simultaneous examination. It is therefore important that the narrative in Part II of the format shown in Exhibit 4.60.1–2 give the foreign tax authorities a clear understanding of the basis for the proposal for a simultaneous examination. Examiners and Managers considering a simultaneous examination recommendation are encouraged to contact either the SEP program analyst or the IRS Tax Attache′s for assistance with questions regarding a treaty partner's laws, administrative practices, statutes of limitations or any other aspect of a potential simultaneous examination proposal.

    Note:

    A listing of the IRS Tax Attache′s, their telephone and fax numbers, and the tax treaty countries they serve is contained in LMSB, International web site on the INTRANET. Also included, are the addresses, telephone and fax numbers of the SEP program analysts on the Exchange of Information Team, in the Office of the Director, International (LMSB).

  5. Part III of the format shown in Exhibit 4.60.1–2 attempts to show the potential benefits that a simultaneous examination of a proposed case would yield. In many instances, examinations may not have progressed to a point where specific amounts, either of tax or of adjustments to income, can be determined or estimated. In those cases, it should be plainly stated that no estimate can be made at this stage of examination. However, if an estimate is given, a brief description of how the estimate was arrived at should be provided.

  6. Part IV of the format shown in Exhibit 4.60.1–2 is intended to provide administration information to the Office of the Director, International (LMSB) and is for that use only. Part IV is not part of the proposal submitted to the foreign Competent Authority.

4.60.1.3.6  (01-01-2002)
Foreign Initiated Proposals

  1. Foreign Initiated proposals received by the Director, International (LMSB) will be transmitted to the International Territory Manager having jurisdiction over the taxpayer.

    1. Within 60 calendar days of the receipt of a simultaneous examination proposal, the International Territory Manager will transmit a memorandum to the Manager, Exchange of Information Team, ATTN:LM:IN:OO:EOI, advising whether the field will participate in the foreign initiated simultaneous examination proposal.

    2. If the field accepts the foreign initiated proposal, the memorandum will also provide the name, address and phone number of the manager who will function as the US Competent Authority's Designated Representative.

    3. If the proposal is not accepted, the memorandum will give the reasons for declining the proposal. In addition, any available information which may be of use to the proposing competent authority will also be included with the memorandum, whether the field is accepting or declining the proposal.

  2. The Director, International (LMSB) is responsible for the response to the foreign treaty/TIEA partner and must transmit any information provided by the field to the foreign competent authority.

4.60.1.3.7  (01-01-2002)
Conduct of Simultaneous Examinations

  1. When a case is accepted for simultaneous examination, the responding Competent Authority will confirm acceptance in writing and will identify a designated representative who will have functional responsibility for directing that country's examination. After receiving confirmation, the proposing Competent Authority will confirm the designated representative.

  2. Any meetings between the designated representatives will be coordinated with the SEP program analysts (in the Office of the Director, International (LMSB) and the foreign government) who will prepare the necessary Competent Authority correspondence and attend all meetings to oversee the exchange of information process. All information must be exchanged by the Competent Authority or his/her designee with delegated authority.

  3. The meetings may take place either in the US or in the foreign country. Therefore, the US designated representative and other members of the examination team who will be taking part in the meetings should take steps to secure US official passports through the International Travel Office, ATTN: LM:IN:OO:TAAS:ITVP.

    1. Requests for foreign travel should be submitted far enough in advance of planned travel to allow the International Travel Office 30 to 45 days to process the request.

    2. The Travel Handbook describes travel outside the US by examination personnel and travel to Canada.

      Note:

      All travel costs connected with a simultaneous examination will be borne by the office to which the participants are assigned. The Director, International (LMSB), as Competent Authority, reserves the right to limit participants.

  4. Meetings held in conjunction with the Simultaneous Examination will consider the audit plans of the participating countries (although there is no exchange of formal audit plans), the possible issues to be developed, timetables and target dates for the examination and approaches to be taken. Other considerations during the Simultaneous Examination Meeting will include what documents, records, etc. might need to be requested through the Simultaneous Examination Program.

  5. The designated representative for the US in a simultaneous examination is NOT authorized to perform the functions of the Director, International (LMSB) as the US Competent Authority under US tax treaties and TIEAs. The designated representative will exchange any information directly with the foreign Competent Authority or his or her designated representative.

  6. All exchanges will be carried out by the Competent Authorities in accordance with the applicable treaty or agreement. The US designated representative will, however, initiate requests for specific information as generated during the simultaneous examination process to the other participating country or countries, and may be required to act upon requests received by the Director, International (LMSB) from the other participating countries.

  7. If issues arise during a simultaneous examination which may lead to double taxation, the US designated representative will inform the Director, International (LMSB) of the details by way of a memorandum to the Manager, Exchange of Information Team, LM:IN:OO:EOI, as soon as practical.

    1. The Manager, Exchange of Information Team, will consult with the Manager, Tax Treaty and, if appropriate, a Competent Authority analyst may become a consultant to, or a member of, the US examination team.

    2. In those instances, the Competent Authority analyst will be responsible for providing direction to the examiners as to the factual development necessary for any issues which could become subject to the Mutual Agreement Procedure (MAP).

    3. US examiners in such cases will limit themselves to development of the facts and will not try to negotiate the resolution of double taxation issues. The Director, International (LMSB) is the only person who has this authority.

    4. The presence of a Competent Authority analyst as a member of, or a consultant to, the examination team does not alter the requirement of Section 1.2.1 of this handbook, concerning the issuance of Letter 1853(P), Right to Request Competent Authority Consideration Letter, to the taxpayer, nor does it relieve the taxpayer of its need to request Competent Authority consideration pursuant to Revenue Procedure 96–13, 1996–1, CB 616. Also see Exhibit 4.60.1–2 of this handbook.

      Note:

      Revenue Procedure 96–13 is currently being revised.

  8. Any participating country may discontinue participation in a simultaneous examination at any time that it concludes that it would no longer be of benefit.

    1. A US initiated discontinuance would be initiated by the US designated representative through a memorandum from the International Territory Manager to the Manager, Overseas Operations, ATTN: LM:IN:OO:EOI, stating the reasons that a discontinuance is recommended.

    2. Upon acceptance of such a recommendation, the Director, International (LMSB) will send a notification letter to the foreign Competent Authority or Authorities and US participation in the simultaneous examination will end.

  9. A simultaneous examination will be concluded at such time as the designated representatives mutually agree. The US designated representative will prepare a report to advise of the conclusion of the simultaneous examination and provide an assessment of its results.

4.60.1.3.8  (01-01-2002)
SEP Reports

  1. Within 10 working days of the end of each calendar quarter (March 31, June 30, September 30, and December 31) each designated representative will provide a status report to the Manager, Exchange of Information Team, ATTN: LM:IN:OO:EOI on any simultaneous examinations that have not been concluded or discontinued. The report(s) will be transmitted through the International Territory Manager and will include:

    1. An account of all direct communications between US examiners and representatives or delegates of the foreign Competent Authority during the quarter relating to the simultaneous examination process including, but limited to, the type and date of such communications, who initiated the communication, the purpose of the communication, and the results of the communication (recommendations, actions or decisions reached).

    2. A listing, by date, of requests for information made by the other participating country or countries during the quarter and reasons for any delays in providing the requested information to the treaty partner.

    3. An advance notice of meetings planned with the designated representatives of the other country or countries in the next quarter, to include sites and dates.

    4. A listing, by date, of requests made during the quarter for information made to the other participating country or countries.

    5. A description and status of issues identified in or for the simultaneous examination.

    6. An explanation of any problem(s) encountered and actions taken or to be taken to resolve the problem(s).

  2. Within 30 calendar days of the conclusion or discontinuance of a simultaneous examination the designated representative will send a report to the Manager, Exchange of Information Team, ATTN: LM:IN:OO:EOI, through the International Territory Manager. The report should include:

    1. Types and amounts of adjustments to the taxpayer's taxable income or tax liability expected to be proposed with respect to the issues which were covered by the simultaneous ex

    2. A brief description of the other compliance benefits which may have been obtained from participation in the simultaneous examination.

    3. A brief description of any particular issues or circumstances encountered which might bear on the undertaking of future simultaneous examinations with the participating country or countries.

4.60.1.3.9  (01-01-2002)
Other SEP Considerations

  1. US taxpayers who have been accepted for simultaneous examination will be informed of the fact by the manager responsible for the US examination.

    Note:

    Since simultaneous examinations are independent examinations conducted by each of the participating countries according to their own laws and procedures, the taxpayer's consent to a simultaneous examination is not required. However, in an effort to inform the taxpayer of the Simultaneous Examination Program, Exhibit 4.60.1–2 provides guidelines and procedures for implementing the Program in the US. This Exhibit may be given to the taxpayer.

  2. Since exchanges of information with a foreign tax treaty or TIEA partner result from a simultaneous examination, taxpayers may resist information requests or seek to impose restrictions or conditions on its disclosure to a foreign Competent Authority.

    1. Managers and examiners should reject any such conditions or restrictions and should not give any assurances that information will not be exchanged or that the taxpayer will be consulted before any exchange.

    2. Any such assurances given will not be binding on the IRS or the US Competent Authority, except as indicated below.

      Note:

      EXCEPTION: If a request for information is resisted by a taxpayer on the basis of its possible disclosure to a foreign Competent Authority, the case or group manager should attempt to obtain a comprehensive explanation of the legal and factual grounds for the taxpayer's objections (such as a claim that the information constitutes a trade or business secret) and consult with Counsel

      Note:

      If the International Territory Manager and Counsel consider that it would be appropriate to agree that any items of information may not be exchanged, or may not be exchanged without prior notice to the taxpayer, they will first secure the written consent of the Director, International (LMSB) before agreeing to any such conditions

4.60.1.4  (01-01-2002)
Industrywide Exchanges of Information

  1. Industrywide exchanges with tax treaty or TIEA partners promote international cooperation in understanding worldwide operations of selected major industries.

  2. The principal objective of the exchange is to secure comprehensive data on worldwide industry practices and operating patterns. This information enables a more effective and knowledgeable review of the tax returns of multinational enterprises.

  3. The scope of an industrywide exchange is established by an exchange of letters between the US and the tax treaty or TIEA partner Competent Authorities. Generally, the Director, International (LMSB) will designate a Designated Representative to coordinate the industrywide exchange.

  4. The Director, International (LMSB) will communicate with the tax treaty or TIEA partner competent authority on all matters relating to industrywide exchanges of information.

  5. Industrywide Exchanges are conducted by tax officials of each country meeting periodically to :

    1. discuss current industry events of mutual interest;

    2. jointly explore common issues;

    3. pool resources for special studies

    4. discuss comparative methodology in establishing arm's length standards;

    5. conduct seminars on major international issues; and

    6. cooperate on new and emerging issues.

  6. During an industrywide exchange, taxpayers are not discussed and no taxpayer information is exchanged. Any request made by a treaty partner for specific taxpayer information is handled in accordance with the exchange of information articles of the tax treaties or TIEA agreements, under the Specific Exchange of Information Program.

  7. Any information obtained at an industrywide exchange should only be disclosed to those persons whose official tax administration duties with respect to the industry issues requires such disclosure.

  8. A status report on the activities of an industrywide exchange with a tax treaty or TIEA partner will be prepared by the Designated Representative.

4.60.1.5  (01-01-2002)
Spontaneous Exchanges of Information

  1. A spontaneous exchange of information is furnished to a tax treaty/TIEA partner without a previous specific request. It typically involves information discovered during a tax examination, investigation or other procedure which suggests or establishes noncompliance with the tax laws of a Tax Treaty/TIEA partner. The information may pertain to nonresident aliens, foreign corporations, US citizens and domestic corporations, or other taxpayers.

  2. The examiner securing the information will forward it to the second level manager. The second level manager will forward the information to the IRS Tax Attache′ who has jurisdiction over the country to which the information pertains. For Canada and France, the information should be sent to: Director, International (LMSB), Exchange of Information, ATTN: LM:IN:OO:EOI.

Exhibit 4.60.1-1  (01-01-2002)
Exchange of Information Checksheet

Taxpayer Name:_____________________________
Taxpayer Address:___________________________ __________________________________________ __________________________________________
US SSN or TIN: _____________________________
Years Under Examination:_____________________
Information regarding the examination or investigation: ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________
Location of the information — include an explanation why we believe that it is in the foreign country. _________________________________________ _________________________________________ _________________________________________ _________________________________________
The specific information needed: _________________________________________ _________________________________________ _________________________________________ _________________________________________ _________________________________________
Explain how the information being requested is relevant to the examination or investigation: _________________________________________ _________________________________________ _________________________________________
Identify any statute, court or similar dates by which the information is needed: _________________________________________ _________________________________________
Do copies need to be certified: Yes ____ No ____ Reason for the certification: __________________ ________________________________________ ________________________________________

Exhibit 4.60.1-2  (01-01-2002)
UNITED STATES SIMULTANEOUS EXAMINATION PROPOSAL

see exhibit below

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Exhibit 4.60.1-3  (01-01-2002)
Guidelines and Procedures for Implementing the US Simultaneous Examination Program

Purpose: This Exhibit provides guidelines and procedures for implementing the US Simultaneous Examination Program.

Background and Objectives: The Exchange of Information Articles contained in all income Tax Treaties and Tax Information Exchange Agreements (TIEAs), to which the US is a party, provide for the exchange of information between competent authorities of one or more countries as is necessary to carry out the provisions of an Income Tax Treaty or TIEA or for the prevention of fraud or fiscal evasion. In order to achieve more efficiency in the exchange of information relating to certain areas of tax avoidance, competent authorities of certain countries have established working arrangements to conduct simultaneous examinations of selected taxpayers, or related taxpayers, carrying on activities in the US and other countries. Disclosure of information exchanged under these simultaneous examination arrangements is subject to the provisions of the Income Tax Convention. (For additional information on disclosure, see paragraph 7 of this Exhibit.)

Note:

Currently, the US has Working Arrangements with Australia, Canada, France, Germany, Italy, Japan, Korea, Mexico, Norway, Philippines, Sweden and the United Kingdom.

The objectives of the Internal Revenue Service (IRS) in the Simultaneous Examination Program are to:

  • develop guidelines for the exchange of information which will be used by both countries in their examination of selected taxpayers with special emphasis on arrangements involving tax haven countries;

  • exchange information on apparent patterns or techniques of tax avoidance that significantly affect tax administration of either country or countries involved with a simultaneous examination;

  • develop guidelines for evaluating tax haven transactions resulting from multiprocessing, transfer pricing issues, research and development, payment of rents and royalties, and market changes in currency; and

  • identify payments generally referred to as "under-the-table" payments, i.e. kickbacks, bribes and "illegal" payments.

Case Selection and Examination Procedures: Selection Procedures — the selection procedures will apply in the following sequence:

  1. Potential taxpayers will be independently identified for simultaneous examination by tax administration officials of each country.

  2. Each country will inform the other of its choice of potential cases using the selection criteria described below. A formal proposal is submitted by one competent authority to another. (See Exhibit 4.60.1–2 for the Standard Format used by the US in submitting proposals to a foreign treaty partner.)

  3. Each country will determine whether it wishes to participate in a particular simultaneous examination. Neither country, however, is obligated to examine all entities proposed by the other country or countries.

  4. If the receiving competent authority accepts a counterpart's proposal to conduct a simultaneous examination, that competent authority will confirm, in writing, the selection of the case and will indicate a designated representative who will have functional responsibility for directing the examination. After receiving the confirmation, the proposing competent authority also will indicate, in writing, a designated representative. In those cases where there is agreement to conduct a simultaneous examination, the competent authorities of each country will formally request, in writing, of the other competent authority, specific information pursuant to the Income Tax Convention.

Criteria for Selecting Cases — Any case selected for simultaneous examination will involve related taxpayers, with connected business activities in the country or countries participating in the simultaneous examination. The factors considered in determining whether a case is selected will primarily be, but not limited to, the following:

  • Activities involving tax havens;

    Note:

    A tax haven, for the purpose of the Simultaneous Examination Program, is a country or jurisdiction that has a zero or low tax rate, or that allows an escape from taxes on economic gains which could otherwise be taxable in the US and the country or countries involved with the transaction.

  • Indications of noncompliance with the tax laws in the participating country or countries;

  • compatible tax years;

  • case with significant operations, either worldwide or in the participating countries;

  • potential for mutual benefit, in terms of each country's tax administration, to be gained by each of the participating countries; and

  • the information, which may be sought or requested under the working arrangement, must be obtainable under the Income Tax Convention and the respective taxation laws of the country or countries involved in the simultaneous examination.

Personnel— Examinations will be conducted separately within the framework of national tax law and practice solely by tax administration officials of each country or countries in a way which maximizes the advantages obtainable from treaty exchanges of information. No interchange of personnel will be made between the countries.

Planning the Examination— Before the start of the examination, the tax administration personnel in charge with the case will consider with their counterparts in the participating country or countries, the audit plans of each country or countries, possible issues to be developed, and target dates. However, there will be no exchange of audit plans between the countries. Target dates include the date upon which the taxpayer(s) in each jurisdiction will simultaneously be notified of the examination. Such notification need not be made in writing, but should be as soon as possible after the initial meeting of the designated representatives. The designated representatives shall meet as frequently as considered necessary by the Competent Authorities to conduct a proper examination.

Advising Taxpayers— The case or group manager will inform the taxpayer that it has been selected for examination pursuant to the Simultaneous Examination Program after the case has been accepted by a treaty partner or partners. The designated representatives will mutually agree as to the time that the taxpayer will be notified. Upon request, the manager will provide the taxpayer with a copy of this Exhibit.

Conducting the Examinations— The Simultaneous Examination Program requires cooperation of personnel located in each of the participating countries, who will simultaneously, but independently, examine the taxpayer within its jurisdiction. The primary responsibility for coordinating the examination and exchanges of information concerning a selected taxpayer will rest with the country where the level of noncompliance with tax laws or tax haven activity appear to be greater. All exchanges of information must be made according to the terms of the Income Tax Convention.

Discontinuing Simultaneous Examinations— If either of the countries, at any time, conclude that it is no longer beneficial to continue the simultaneous examination of a selected case, it may withdraw by notifying the other country or countries of its intent to withdraw.

Concluding the Examinations— A simultaneous examination will be concluded after coordination and consultation between the countries involved in the simultaneous examination. Information will be formally exchanged so that final action can be recommended with respect to the examinations in each jurisdiction

Post Examination Critique:

At the conclusion of each simultaneous examination, the Designated Representative will prepare a report for submission through channels to the Director, International (LMSB), Attn: LM:IN:OO:EOI. This report will include:

  1. Assessments of the benefits of the working arrangement, as well as the problems encountered, and how they were resolved. Also, the report will include recommendations for amendments and improvements to the working arrangement.

  2. Recommendations for perfecting selection criteria based on the experience gained during the examination.

  3. Descriptions of audit techniques found to be effective in the examination of that particular type of multinational taxpayer, or other taxpayers under examination.

Responsibilities of the Office of the Director, International (LMSB) — The Office of the Director, International (LMSB) will:

  1. Coordinate case selection with the International Territory Managers.

  2. Forward requests for information and responses made to the US, from the Competent Authorities of the participating country or countries, to the appropriate International Territory Manager.

  3. Forward US requests for information and responses to the Competent Authorities of the foreign country or countries participating in a simultaneous examination.

  4. Monitor with each affected International Territory Manager, the examination progress of each US multinational company and related subsidiaries, both domestic and foreign, and other taxpayers involved in the Simultaneous Examination Program.

Disclosure of Information Received from a Treaty Partner:

Many of the income tax treaties currently in force with the US contain a secrecy clause restricting disclosure of information exchanged pursuant to the treaty. Use and disclosure by the IRS of information obtained pursuant to the Simultaneous Examination Program is governed by the treaty and IRC section 6103.

Problems concerning the confidentiality or disclosure of information secured by the US from a treaty partner under the Simultaneous Examination Program should be immediately referred to the Director, International (LMSB), Attn: LM:IN:OO:EOI.

Disclosure of Information Provided by the United States to a Treaty Partner.

IRC section 6103, which deals with the confidentiality of returns and return information, provides for the disclosure of return or return information pursuant to the tax treaties — IRC section 6103(k)(4).

The tax treaties to which the US is a party, contain articles providing for exchanges of information. In general, such articles provide that no information shall be exchanged which would disclose any trade, business, industrial, commercial, or professional secret or process.

Problems concerning the disclosure of information provided to any treaty partner under the Simultaneous Examination Program should be immediately referred to the Director, International (LMSB), Attn: LM:IN:OO:EOI.

Any disclosures made pursuant to the tax treaties must be accounted for as required by the IRM.


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