Tuesday March 6, 2001
Commonwealth Nations Demand Full
Participation in OECD Tax Competition Plan
By Lawrence J. Speer
PARIS--British Commonwealth jurisdictions accused of harmful tax competition declared their willingness to cooperate with the Organization for Economic Cooperation and Development's anti-tax
havens initiative but in return demanded more autonomy and far greater participation in the process, sources told BNA March 5.
The demand for full participation in decisionmaking linked to the harmful tax competition initiative emerged in a compromise proposal the Commonwealth nations presented March 2 at
the conclusion of a meeting with OECD officials and selected member countries.
The classified document--large portions of which were unveiled to BNA March 5--also sought to:
** extend until the end of the year a July 31 deadline for the signing of cooperation agreements;
** create a "most-favored nation" approach by which the most favorable terms offered to any suspected tax haven would be offered to all jurisdictions targeted in the OECD
** allow for an "opt-out" clause under which targeted offshore financial centers would be allowed to cease cooperation in the event that any OECD nation failed to comply
with the terms of the harmful tax competition initiative;
** guarantee full and immediate membership to all cooperative jurisdictions in a global taxation forum created in mid-2000 by OECD and nonmember nations;
** permit officials from offshore financial centers to participate alongside OECD officials monitoring and evaluating implementation and compliance with measures outlined in the
harmful tax competition initiative; and
** maintain a collective, rather than bilateral, approach to the ongoing negotiations with the OECD, which should include future negotiations in March and April.
'No Comment' From OECD
The OECD's harmful tax competition project aims to identify and later punish uncooperative tax havens, defined as nations or jurisdictions that refuse to share banking and other
financial information while actively seeking to attract mobile financial activities for tax evasion purposes.
The OECD published an initial list of suspected tax havens in June 2000 and gave the 35 jurisdictions a July 31, 2001, deadline to express a formal commitment to cooperate by 2005
or face a host of punitive diplomatic, economic, and financial sanctions.
Nine jurisdictions--Bermuda, the Cayman Islands, Cyprus, the Isle of Man, Malta, Mauritius, the Netherlands Antilles, San Marino, and the Seychelles--committed to a Memorandum of
Understanding drafted by the OECD in late 2000 on key areas of cooperation including transparency, nondiscrimination, and effective information exchange, and no longer are facing the risk of sanctions (39 DTR G-1,
The OECD refused all comment March 5 on the substance of the Commonwealth countries' proposal. A spokesman noted that the meeting's co-chairs--Owen Arthur, prime minister of
Barbados, and Tony Hinton, Australia's ambassador to the OECD--issued a statement March 2 welcoming the "improved understanding and progress achieved" during the meeting.
"A number of new proposals were put on the table by both parties, which we have agreed to examine over the coming days," the statement said.
This examination is expected to take the form of an electronic mail and telephone dialogue over the coming days between Arthur and Hinton, and later between the two leaders and
their respective negotiating partners.
Agreement on one or more of the terms in the Commonwealth countries' proposal will likely lead to continuation of the dialogue, but neither officials at the OECD nor their
counterparts at the Commonwealth offices in London were willing to speculate if or when the process would go forward.
"We have put something serious on the table for the first time, and now they seem to at least know the points that we completely agree on," a Commonwealth source told
BNA. "We don't know what the response will be, so we have to wait and see," he said.
An OECD source admitted that the "improved understanding" described in the statement from the co-chairs relates specifically to the lengthy question-and-answer session
surrounding the process instigated by the Commonwealth countries.
"They posed some basic and fundamental questions in areas where the OECD had probably not clarified as much as it should have done," the source said. "In answering
these questions, it was obliged to come up with more specifics than had previously been given, and was forced to think about some issues that have been glossed over that some might say the OECD should have been more
specific about long time ago."
After the Q-and-A session, the Commonwealth nations officially rejected the MOU already agreed to by the nine now-cooperative jurisdictions. They informed the OECD that compromise
cannot be based on a document written by the world's richest countries and forced on the offshore financial centers.
The Commonwealth nations expressed particular concern that the OECD has defined two compliance standards: one for the offshore financial centers, which must toe the line to an
OECD-dictated approach by July 31, 2001, or face sanctions; and a second for member states Luxembourg and Switzerland, each of which abstained from the initial OECD report that launched the harmful tax competition
initiative and have now been given until 2003 to comply bilaterally with the overriding principles of the project.
"Commonwealth countries are very concerned about the discrepancies between what the OECD is asking offshore financial centers to do versus what it is asking from its own
members," one participant in the talks told BNA.
"The offshore financial centers targeted by the OECD want the same leeway to define their compliance with the objectives of the harmful tax competition plan as has been given
to the OECD members," he said.
Aside from the two-tiered treatment issue, other "grey areas" in the MOU include:
** uncertainties about the varying transparency requirements that may apply to mandatory information exchange, particularly the differences applying to civil versus criminal tax infractions;
** uncertainties about transparency requirements for portfolio investments and bank accounts held by individuals, versus those applied to companies in the same areas;
** legal uncertainty pertaining to the term "impediments" when applied to alleged failures to fully disclose information; and
** potential incoherence between "defensive measures," or sanctions, that the OECD may take against suspected tax havens and corresponding obligations under international
treaties, including those that form the World Trade Organization.
International Tax and Investment Association
Sources also said the non-OECD countries decided during the Paris meetings to establish an International Tax and Investment Association, envisioned as a membership-funded body that
will allow the group to forge common positions in negotiations with the OECD.
Should the OECD issue sanctions, the ITIA, scheduled to hold its first meeting later this month in an undisclosed Caribbean location, also will be involved in developing joint
Formation of the ITIA also could add a North-South dimension to the brewing dispute between the OECD and the suspected tax havens, which rich countries have until now sought to
describe as an effort to eliminate illegal tax evasion and level the playing field for global business.
By Lawrence J. Speer
Copyright © 2001 by The Bureau of National Affairs, Inc., Washington D.C.