What Are TIEAs and How Do They Differ from CRS?
A Tax Information Exchange Agreement (TIEA) is a bilateral treaty negotiated between two countries. Its sole purpose is to establish a legal framework for exchanging information to combat tax evasion. Think of it as a direct line of communication between the tax authorities of two nations, but one that can only be used under specific circumstances.
Here’s how TIEAs stand apart from other agreements:
TIEA vs. CRS: The most significant difference is the process. The CRS is an automatic, multilateral system where financial institutions in participating countries automatically report data on all foreign account holders annually. A TIEA is a manual, bilateral process that is only initiated upon request when there is a specific suspicion of tax evasion.
TIEA vs. Double Taxation Agreements (DTAs): DTAs are designed to prevent individuals and companies from being taxed twice on the same income. They are typically signed between two high-tax countries. TIEAs, on the other hand, are usually established between a high-tax country and a low-tax or zero-tax jurisdiction (a "tax haven"). Since there's no risk of double taxation with a tax haven, a DTA isn't necessary; the focus is purely on uncovering potential evasion.
The TIEA Process: A Manual Chase for Information
Imagine a tax investigator in Germany suspects a citizen is hiding untaxed funds in the Cayman Islands. They can't just send an email and get a bank statement. The TIEA process is deliberate and bureaucratic, with several hurdles that make it far from a guaranteed success.
1. The Request: More Than a Simple Email
The process begins when a designated "competent authority" in Country A (e.g., a special department within Germany's Federal Central Tax Office) sends a formal request to its counterpart in Country B (the Cayman Islands). This isn't a casual inquiry; it's an official letter, often sent as a large PDF, which must be followed by the physical original document. Information is typically not released until the hard copy arrives.
2. Built-in Hurdles: Why Many Requests Fail
The system has several built-in checks and balances that give the requested country significant leeway. A request can be legally refused for several reasons:
No "Fishing Expeditions": The requesting country must have reasonable grounds for suspicion. They cannot simply ask for a list of all German citizens with accounts at a certain bank. Such baseless requests are considered "data mining" and are almost always rejected.
Exhaust All Other Options: The requesting country must demonstrate that it has already tried to get the information through its own domestic channels.
Precision is Key: The request must be highly specific. For an offshore company, the exact legal name is required. Even a minor spelling mistake can be grounds for non-response. For a bank account, the person's name is the minimum requirement; some jurisdictions may arbitrarily require an account number as well.
The entire process has a stipulated timeframe of around three months, and there are no real enforcement mechanisms to compel a country to comply beyond potential reputational damage with the OECD.
3. The Bank's Role: Gatekeeper or Collaborator?
If the competent authority in Country B accepts the request, it then contacts the relevant bank. The bank is given a period (often two months) to gather the information. However, the bank is not a passive participant. It can—and sometimes does—resist the request if its legal team believes the request is invalid or does not meet the TIEA's criteria. This can stall the process or even force it into a court battle, adding significant time and cost.
What Information Actually Gets Exchanged Under a TIEA?
If a request successfully navigates all these hurdles, the scope of information shared depends on the request and local laws. It's not an all-access pass to your financial life. Only information explicitly mentioned in the request is shared. If they ask for details on Account X, they won't get information on Account Y, even if it's at the same bank.
The information can include:
Account balances and transaction histories.
Details on beneficial owners of a company.
Corporate documents.
In rare cases, technical data like IP addresses from online banking logins to trace a person's location.
Risk Assessment: Should Digital Nomads Worry About TIEAs?
For the vast majority of digital nomads and online entrepreneurs, the direct risk from a TIEA is extremely low.
Why? The data tells the story. Even in major offshore centers with hundreds of thousands of companies and accounts, the number of TIEA requests is remarkably small—often just a few hundred per year. The process is expensive, slow (taking months), and has a high failure rate.
TIEAs are a scalpel, not a sledgehammer. They are reserved for high-priority targets, typically individuals suspected of evading taxes on multi-million dollar amounts. They are not a practical tool for investigating the average digital nomad who has legally structured their affairs with an offshore company (like a US LLC) and is not a tax resident in a high-tax country.
In fact, the very existence of the CRS is proof of the TIEA system's shortcomings. High-tax countries and the OECD realized TIEAs were too inefficient for mass surveillance, which led them to create the automatic, all-encompassing CRS framework.
