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A guide to Mutual Legal Assistance Treaties in tax investigations

In an increasingly globalised world, tax evasion and fraud have become complex, cross-border issues.

Governments are keen to clamp down on these activities, but jurisdictional limitations often hamper their efforts.

This is where Mutual Legal Assistance Treaties (MLATs) come into play.

These international agreements facilitate cooperation between countries in legal matters, including tax investigations.

Here’s a guide to understanding how MLATs work in this context and everything that your business should know.

What are MLATs?

Mutual Legal Assistance Treaties are formal agreements between two or more countries that establish protocols for sharing information and providing legal assistance in criminal matters.

These treaties cover a broad range of issues, from extradition to asset recovery, but they are increasingly being utilised for tax investigations.

How do they work in tax investigations?

When a tax authority suspects that an individual or a corporation is evading taxes by hiding assets or income in another country, it can request assistance from that country’s tax authority through an MLAT.

The request usually involves the sharing of tax records, bank statements, and other financial documents.

Some treaties even allow for joint investigations and real-time access to databases.

Benefits of MLATs in tax investigations

Limitations and concerns

While MLATs offer numerous advantages, they are not without limitations.

The process can be time-consuming and bureaucratic.

Moreover, not all countries have MLATs with each other, which can create gaps in enforcement.

There are also concerns about data protection and civil liberties, as these treaties can sometimes be used for mass surveillance or political persecution.

The future of MLATs in tax investigations

As tax evasion schemes become more sophisticated, the role of MLATs is likely to grow.

Countries are already working on modernising existing treaties and negotiating new ones to include provisions specifically aimed at tax investigations.

The introduction of digital platforms for real-time information exchange is also on the horizon.

All of these things might impact your business in the future and could change your current tax practices.

To learn how MLATs could affect your business and how tax investigations occur, please speak to one of our expert tax advisers.


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