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Bureau of National Affairs

Wednesday March 7, 2001

Tax, Budget & Accounting

International Taxes:
OECD Says Principles, Not Procedures,
Key to Settling Tax Havens Dispute

     PARIS--Resolution of the harmful tax competition dispute between offshore financial centers and the world's most industrialized nations remains deadlocked over principles, not procedures for cooperation, a top Organization for Economic Cooperation and Development official told BNA March 6.

     "As long as we can reach an agreement on the interpretation of the three principles behind the initiative, the procedural issues will resolve themselves," said Jeffrey Owens, head of the OECD's fiscal affairs directorate. 

     Owens was speaking in response to a proposal offered March 2 by a group of British Commonwealth jurisdictions at the end of a day-long negotiation with the OECD over its anti-tax havens initiative (44 DTR G-4, 3/6/01).

     The countries--including Antigua and Barbuda, Barbados, the British Virgin Islands, the Cook Islands, Malta, and Vanuatu--declared their willingness to cooperate with the OECD program, but in return demanded more autonomy for defining this cooperation and far greater participation in the process.

     July 31 Deadline Looms

     "The key thing is to find a way for any jurisdiction that wants to meet the July 31 deadline to do so," Owens said. "Once you've made that commitment, all the doors are open for participating in the process."  The OECD published an initial list of suspected tax havens in June 2000 and gave the 35 jurisdictions named a July 31, 2001, deadline to express a formal commitment to cooperate by 2005. 

     Jurisdictions that refuse to commit to share banking and other financial information with OECD governments while actively seeking to attract mobile financial activities for tax evasion purposes will be identified as "noncooperative" tax havens, and could face a host of punitive diplomatic, economic, and financial sanctions. 

     Six jurisdictions--Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius, and San Marino--agreed to OECD demands for greater transparency, nondiscrimination, and effective information exchange before the initial list was published, while three others--the Isle of Man, the Netherlands Antilles, and the Seychelles--later reached bilateral agreements to do so (39 DTR G-1, 2/27/01).

     The 32 remaining jurisdictions began participating in a variety of OECD projects on the tax competition issue, including discussions about creation of an information exchange instrument being run by a global tax forum bringing together the 30 OECD nations and 30 nonmember countries. 

     The proposal by the Commonwealth nations included a specific demand for full participation in the Global Forum, a structure laying the foundation for wide-ranging cooperation between the OECD and nonmember nations in areas ranging from transfer pricing to tax treaties and fiscal treatment of electronic commerce and foreign direct investment.

     OECD Wants Commitment Up Front

     The OECD is in favor of allowing offshore financial centers to participate in this work, "as soon as a commitment is made" to cooperate in the harmful tax competition initiative, Owens said. "We have said all along that we are willing to open up the Global Forum and make it more inclusive ... but if a country has not made a commitment, then it makes no sense for them to be in the group." A Global Forum working group steering the exchange of information instrument will meet in Paris in late March, and Owens remains cautiously optimistic that some Commonwealth nations may commit to the OECD project by then. 

     Barbados Prime Minister Owen Arthur and Tony Hinton, Australia's ambassador to the OECD, are examining the new proposals from both sides and stated their intention to work toward reaching some agreement during an electronic mail and telephone dialogue over the coming days.

     Owens suggested that the result of this dialogue could be public within 10-15 days, noting that the negotiating positions were "sufficiently close" to allow for "hope that contact between the co-chairs will allow the process to move forward."

     Bilateral Talks Continuing

     The OECD also is continuing bilateral talks with nations on the suspected tax havens list. A team of negotiators was dispatched on a three-week mission to the Caribbean aimed at reaching bilateral agreements with a group of undisclosed jurisdictions. Similarly, OECD negotiators will also launch new rounds of bilateral talks in the European and Pacific island jurisdictions on the suspected tax havens list. The Commonwealth nations oppose these bilateral missions, but the OECD remains adamant that one-on-one talks are necessary. "We have continued holding bilateral discussions," Owens said. "Not because it is solely what we want, but because it is what some of the jurisdictions want." 

     Noting that cooperation agreements are bilateral documents between the jurisdiction and the OECD, Owens suggested that the process gives both parties "the opportunity to tailor the document to individual circumstances."

     By Lawrence J. Speer

     Copyright © 2001 by The Bureau of National Affairs, Inc., Washington D.C.


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