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Caribbean Media Corporation

November 1, 2001

Not Much has changed with OECD

By Johnson JohnRose

BRIDGETOWN, Nov 1, 2001, CMC –For the ordinary Caribbean citizen who knows very little, if anything about this business of Harmful Tax Competition, the latest report by the Organisation for Economic Cooperation and Development (OECD) could lead one to believe that the grouping has actually sat up and listened of to the concerns of Caribbean financial jurisdictions.

But for the expert whose been sitting across the table from them, nothing has really changed.

"This report is written very cleverly…… if you read this report it sounds as if the OECD has sat down with us, has listened to what we had to say and has modified their report to take account of everything we asked for, and that simply is not the case," said Sir Ronald Sanders, one of the Caribbean's leading spokesmen on financial services told the Caribbean Media Corporation.

He has called on Caribbean financial services jurisdictions to agree a collective response OECD's latest report on Harmful Tax Practices.

"I would hope no (Caribbean) country goes off and signs up to their demands without at least telling the rest of us that that's what they plan to do because if any country does that it will leave the rest of us badly exposed," Sir Ronald told the CMC after the OECD released a 13-page progress report on Wednesday on the contentious issue.

"The ideal situation would be for all our jurisdictions who are affected by this to meet and to collectively decide how we are going to approach it on a going forward basis," he said.

The OECD is a multi-national grouping of 30 of the world's richest countries, many of which are at the forefront of pushing globalisation and liberalisation of trade. In April 1998, it published a report entitled "Harmful Tax Competition: An Emerging Issue" which recommended measures to counter the loss of taxation to its member countries from overseas investments by resident companies and peoples.

The measure was meant to gain access to the foreign bank account information of their resident companies and peoples and to stop other countries from attracting investment from residents and companies of OECD member countries by offering them tax concessions.

It also issued a set of criteria for determining whether or not a jurisdiction is a "tax haven," which included the controversial "no substantial activities" criterion, otherwise known as " ring fencing" which refers to tax concessions given to international businesses registered in a country but that did not have an actual physical presence there, transparency and effective exchange of information in both civil and criminal matters.

In June 2000, the OECD released a blacklist, which included virtually every Caribbean jurisdiction, which it claimed engaged in "harmful tax practices" and threatened to impose sanctions against those jurisdictions that failed to meet its standards by July 2001.

The grouping met in Paris in April and removed the threat of sanctions and instead threatened to "name and shame" the jurisdictions that failed to comply to its set conditions by November 30, 2001.

In its progress report released on Wednesday, the OECD extended the "name and shame" deadline to February 28, 2002 and said it would no longer use the "no substantial activities" criterion in determining whether a tax haven is considered an uncooperative jurisdiction because "the determination of whether local activities are sufficiently substantial is difficult".

But it insisted on the "transparency" and "effective exchange of information" criteria which Caribbean jurisdictions have repeatedly criticised.

Sir Ronald, who is his country's High Commissioner to London, said the Caribbean welcomed the decision on "ring fencing" but the modifications announced on Wednesday were inadequate.

"The thing that would trouble us more than anything else is the fact that we would still be required to sign up to transparency and effective exchange of information without contributing to the definition of what those two terms mean and without contributing to defining the ways in which they would be applied.

"We would (also) be asked to sign up to them without knowing whether these same definitions and applications would be accorded to the OECD countries which are our competitors in financial services and whether we would have a right as a player to be able to ascertain that they are complying with the same rules that are being required of us," he told the CMC.

Caribbean jurisdictions, none of which belong to the OECD, have argued that the grouping has no jurisdiction over them and that it should not dictate what their tax rates should be or how their tax systems should be structured.

In the introduction to Wednesday's report entitled "The OECD Project on harmful Tax Practices: The 2001 Progress Report," the grouping sought to dismiss the claim.

"The OECD project does not seek to dictate to any country what its tax rate should be, or how its tax system should be structured. It seeks to encourage an environment in which free and fair tax competition can take place," the report stated.

Belgium and Portugal abstained from the progress report. Luxembourg, which recalled its abstention to the original 1998 report, said it regretted that the 2001 progress report was further away from the goal of combating harmful tax competition with respect to the location of economic activities. Switzerland noted that its 1998 abstention applied to any follow up work undertaken since 1998, the reported stated in a footnote.

The report also stated that modifications were made in light of concerns raise regarding some aspects of the harmful tax competition initiative, making reference to a Joint Working Group of jurisdictions from the Commonwealth and the OECD which was established in Barbados following a meeting in January to try to reach common ground of the so-called harmful tax issue. The Working Group, jointly chaired by Barbados Prime Minister Owen Arthur, and Tony Hinton, Australia's Ambassador to the OECD, and which includes Antigua and Barbuda, Australia, Barbados, the British Virgin Islands, the Cook Islands, France, Ireland, Japan, Malaysia, Malta, the Netherlands, Vanuatu and the United Kingdom, met in Paris in March to "attempt to find a mutually acceptable political process by which these principles of transparency, non-discrimination and effective exchange of information could be turned into commitments.".

Sir Ronald said regional jurisdictions had to decide if they would reject the current demands and face sanctions in 2003, or whether they would "simply acquiesce to some of this and try to fight the battle down the road".

The OECD sanctions would not apply to uncooperative tax havens any earlier than it would apply to OECD Member countries with harmful preferential regimes, the grouping said as it emphasised another one of its modifications.

But Sir Ronald insisted that Caribbean jurisdiction should flatly reject the accusation that they were non-cooperative.

"I can say beyond shadow of doubt that the countries of the Caribbean, all of us, wish to be cooperative.

"We've been cooperative with the Financial Action Task Force on money laundering, we've been cooperative with the United Nations in the context of the UN resolutions on terrorism, we've been cooperative with countries on a bilateral level on criminal matters….. to suggest that we are non-cooperative over the fact that we reserve the right to compete with OECD countries on the question of taxation is a nonsense," argued the Antigua diplomat.


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