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CFP News Summary, 05-08-01

     Eight of the 35 low-tax jurisdictions, labeled as harboring "harmful" tax policies in a June 2000 OECD report, have quietly banded together in a new group to respond in a unified voice to the looming threat of OECD sanctions, the Worldwide Tax Daily reported on May 8.

     The multilateral body, which grew out of the work of the OECD- Commonwealth Joint Working Group on Harmful Tax Competition, calls itself the International Tax and Investment Organization (ITIO). Eight of the small and developing economies -- as the targeted low- tax jurisdictions like to call themselves -- formed the club in Paris in early March, during the second meeting of the joint working group of six OECD countries and seven non-OECD countries, to coordinate a response to the OECD blacklist. The ITIO currently consists of Antigua and Barbuda, Bahamas, Barbados, the British Virgin Islands, the Cook Islands, Dominica, Malaysia, and Vanuatu. Three other Caribbean jurisdictions were expected to join the group the week of 7 May. The Pacific Island Forum, the Commonwealth Secretariat, and CARICOM Secretariat also have been granted formal observer status.

     The ITIO isn't well known internationally because it hasn't received much press attention, according to Ben Coleman, a spokesman for the ITIO. Coleman told Tax Analysts in an exclusive interview that the ITIO was formed by jurisdictions targeted by the OECD initiative. Even though those jurisdictions are interested in working with the OECD, talks appear to have broken down, despite a promising start in January, when the OECD called the jurisdictions together in Barbados to discuss how they could enhance their dialogue. It was there that both sides agreed that a joint working group would be set up. That group met in London on 26-28 January and had a follow-up meeting on 1-2 March in Paris. Talks now seem to be at a standstill.

     The talks may have stalled because of the ITIO's insistence on obtaining from the OECD written answers to 17 key questions that the targeted jurisdictions posed just before the Paris meeting. The questions stem from the OECD's drive to achieve agreement on three broad-based principles: transparency, nondiscrimination, and effective exchange of information. The OECD says the targeted jurisdictions must agree to change certain harmful policies of theirs -- which the OECD says fly in the face of those principles -- by a 31 July deadline. If they don't comply with the OECD by that deadline, they risk facing punitive economic sanctions from each of the 30 major OECD countries -- sanctions that could very well destroy their economies.

     The ITIO members are seeking specific answers, such as the OECD's precise definitions of a "criminal tax matter" and a "civil tax matter"; confirmation that the affairs of individual persons (such as interest on bank accounts, portfolio investments, and property holdings) aren't covered by the commitments; confirmation that all of the changes the OECD is demanding from the listed jurisdictions will also be required of OECD member countries; confirmation that OECD member countries will implement any necessary changes to enable them to comply with the standards set out in the memorandum of understanding; confirmation that individual OECD member countries are prepared to apply the same economic sanctions to noncomplying OECD members as may be applied to any jurisdictions on the blacklist; and confirmation that failure of OECD members to comply with the standards will be grounds for the committed tax havens to escape the same commitments.

     OECD Head of Fiscal Affairs Jeffrey Owens told Tax Analysts that the OECD orally answered the jurisdictions' questions at length during the second Paris working group meeting. Nevertheless, the OECD is planning to keep its commitment to provide written answers to the questions. It is working on refining the answers, which takes time, as the responses must first be approved by each of the 30 OECD member countries, Owens said.

     Meanwhile, the ITIO has scheduled its next meeting to take place on 9-11 May in London -- the week before the OECD holds its annual ministerial council meeting in Paris. The unanswered 17 questions are bound to be one of the key topics of the ITIO's discussion. Another topic for discussion will be the ITIO's plan to bring before the World Trade Organization any OECD member country that tries to impose economic sanctions upon ITIO members, Coleman said.

     Source: Cordia Scott, "Low-Tax Jurisdictions Press OECD to Answer Questions on Fairness," Worldwide Tax Daily, May 8, 2001,

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