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Softening of banking secrecy rules

The OECD has developed new guidelines with respect to transparency and improvement of administrative co-operation, aiming to abolish harmful tax practices by exchange of information between the competent authorities of the contracting states. Those new standards were incorporated into Article 26 of the Model Tax Convention on Income and on Capital of July 17 2008.

The new provisions stipulate, amongst others, that the supply of information cannot be declined solely because of the information being held by a bank. Further they allow for unlimited exchange of information even where the requested state does not have an interest to obtain the required information for its own tax purposes.

Initially, Austria reserved the right not to include paragraph five of Article 26 of the OECD Model Convention 2008 in its conventions as it would contradict the Austrian banking secrecy rules. Up until now Austria would only be authorised to exchange information held by a bank or any other financial institution where it was requested within the framework of a criminal investigation in the requesting state concerning tax fraud.

As the majority of the OECD member states agreed on imposing the new standards, Austria was put under international pressure, following which it finally withdrew its reservation. Subsequently, Austria introduced the Administrative Aid Implementation Act for adopting the new standards, effective from September 9 2009. The Administrative Aid Implementation Act does, however, not affect the Austrian banking secrecy rules concerning Austrian residents with no economic connection to another state.

The provisions of the Administrative Aid Implementation Act state that administrative co-operation can only be provided to the extent regulated by applicable community law, bilateral double tax conventions, other treaties subject to international law or other provisions to be observed. In the case of a foreign request for administrative co-operation, the Federal Minister of Finance, who is normally the competent Austrian authority, has to verify whether the requirements pursuant to the applicable provisions are fulfilled before any measures for gathering information are taken.

A foreign request for confidential information that would be subject to the Austrian banking secrecy rules cannot be declined any longer if the applicable statutory source states that this would not be permissible solely because the information is held by a bank. In addition, the competent authority has to assess whether the requested information would be foreseeably relevant for the purposes of the requesting state. The banks are obliged to disclose the requested information to the competent authority if those requirements are met. However, the OECD standards assume that the provision of information subject to banking secrecy can only be sought by request and exclude any automatic supply. Furthermore so-called fishing expeditions are not permissible: information can only be requested based on a specific connection of a certain person to the requested state (Austria).

Persons affected by such a request have to be informed. Subsequently, they can apply for a court order determining whether the requirements for the provision of confidential information subject to Austrian banking secrecy rules are fulfilled. This court order is again open for an appeal to the Higher Constitutional Court or the Higher Administrative Court in Austria.

Roswitha Wutschl

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