handbook-tb

Diane Ringoperations and making investments in the country. To achieve thislevel of understanding, it may be necessary for the country to have asolid grasp of the activities, transactions and business structure of thetaxpayer beyond the borders of its jurisdiction.2.1.2 DisclosureThe term “disclosure” captures the idea that a country will need accessto the information necessary to provide transparency regarding theactivities of a taxpayer.2.1.3 Exchange of informationThe phrase “exchange of information” refers to the process (and mechanism)by which a country can obtain information regarding a taxpayeror the transactions of the taxpayer, typically from another country. Themost well-known mechanisms for exchange of information are bilateraltax treaty provisions based on Article 26 of both the United Nations andthe OECD Model Conventions, discussed in section 5.2 below.2.2 Current need for informationAs noted above, and discussed more extensively in section 5.1 below,the demand for taxpayer information by taxing authorities is not new.However, the current lack of transparency that many countries face(owing in part to insufficient disclosure) has become a significantproblem. The growth in cross-border commerce by multinationalenterprises (MNEs), both foreign and domestic, has created a crisis ininformation for several reasons, as outlined below.2.2.1 Cross-border tax planningTaxpayers with cross-border activities can engage in a wider arrayof tax planning techniques which can lead to base erosion and profitshifting. Substantive tax law changes that are designed to eliminatevarious arbitrage opportunities are one tool for attacking this problem.But substantive tax reform is insufficient given that arbitrage may bedifficult to identify and fully eradicate. Adequate disclosure remainsvital for the needed transparency regarding taxpayer activities.500