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Bureau of National Affairs

Thursday December 14, 2000

International Taxes:
Two Nations Agree to Eliminate Transactions
Considered Harmful Tax Practices by OECD

     The Netherlands Antilles and the Isle of Man have agreed to eliminate financial transactions identified by the Organization for Economic Cooperation and Development as harmful tax practices, according to a Dec. 13 OECD news release. 

     The two nations were among 35 jurisdictions identified by the OECD in June as meeting the technical criteria for being tax havens (124 DTR G-1, G-3, 6/27/00).

     By making their commitment, the two countries have ensured they will not be featured in the OECD's list of uncooperative tax havens to be completed in July 2001, the release said. The organization looks forward to working with these jurisdictions to ensure implementation of the necessary changes, the release said.

     Earlier this year, Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius, and San Marina also made similar commitments, the release said. 

     OECD welcomes the countries' efforts in favor of transparency, nondiscrimination, and effective cooperation, said Will Davis of OECD's Washington, D.C., office. The organization realizes that some nations will need to make changes in their domestic legislation to meet the Dec. 31, 2005, deadline so it does not expect the changes to occur overnight, Davis added. 

     OECD Member Countries Also Involved

     Davis added that member countries of the OECD are also bringing their own internal practices into compliance, as well as looking to non-OECD members to comply with the group's rules on harmful tax competition. A 1998 OECD report said that globalization and new technologies are increasing the numbers of tax regimes designed to attract geographically mobile activities, such as financial and service activities. 

     It created a Forum on Harmful Tax Practices, set guidelines to address harmful tax regimes in member countries, and adopted recommendations to combat harmful practices (50 DTR G-2, 3/14/00). The harmful tax regime project is focused on three areas: the 29 members and their harmful practices, nonmembers that may have harmful preferential regimes, and tax havens.

     In March, the OECD announced it was investigating proposals to assist small economies in conforming to more accepted tax practices.

Haven Identification Burden to Countries

     "What we have already seen with many of these jurisdictions is that simply being named on the list has hurt investment or financial transactions in a lot of the areas that have been identified as tax havens," Davis told BNA Dec. 13.

     "When countries are taken off this list of tax havens, that is a tacit endorsement by the international community of their financial and tax policy and their banking policy," he added.

     Davis explained that corporations or investors seeking to do banking with confidence and security would select an institution whose practices are accepted by the international community. "You would want to go someplace that is not on the tax haven list," he said. 

     He said investors would want to know that an institution is going to be there, that it will be responsive and cooperative with the proper authorities, and that the money invested would be safe. "I'm certainly not saying that putting [a country] on our tax haven list means that funds are going to disappear," he said. "What I am saying is that taking them off the list is a vote of endorsement from the world's most economically advanced countries."

Questioning the Need to Comply

     Dr. Heinz Frommelt, justice minister of Liechtenstein, which has been identified by OECD as participating in harmful tax practices, said that his country cannot, on principle, accept OECD terms.

     Frommelt said that complying with OECD guidelines would force Liechtenstein to raise taxes, causing an unnecessary economic burden, and would remove financial privacy.

     Speaking at the Heritage Foundation Dec. 13, Frommelt explained that tax and banking practices that are identified as criminal by some nations may be considered legitimate in others. He was vehement that Liechtenstein is against money laundering and criminal tax transactions. But Frommelt said he saw banking secrecy as an important element in maintaining the flow of money and trade, not necessarily a crime. 

     Andrew Quinlan, president of the Center for Freedom and Prosperity added that the OECD is like a paper tiger because it cannot enforce the changes it wants implemented.

     Quinlan said he believes that OECD is targeting countries like the Netherlands Antilles, Isle of Man, and Liechtenstein to gain access to more competitive nations like Singapore and Switzerland and, ultimately, to the largest tax havens, which he said were the United States and the United Kingdom. 

By Myrna Zelaya-Quesada

Copyright © 2000 by The Bureau of National Affairs, Inc., Washington D.C.

 

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