Britain And France Issue Offshore Sanctions Threat

by Robert Lee, Tax-News.com, London

09 July 2009

British Prime Minister Gordon Brown and French President Nicolas Sarkozy have said that those jurisdictions who fail to meet global tax transparency standards by next March should be punished with sanctions.

Seeking to take the lead among the G20 nations on the issue of global financial regulation, banking secrecy and tax transparency, Brown and Sarkozy want to up the ante on those offshore jurisdictions which have already met the Organization of Economic Cooperation and Development’s (OECD) tax standard by suggesting that the bar be raised higher and the goalposts widened to include tax avoidance – which in most places is not a crime – and not just tax evasion.

Currently, jurisdictions need to have 12 tax and information exchange agreements (TIEAs) in place to ensure a place on the OECD’s ‘white list.’ But the Anglo-French leaders believe that the 12 TIEA benchmark should be just the “starting point” in the drive towards more transparency, meaning that those territories which have met the standard could find themselves relegated back onto the so-called ‘grey list’ of countries which have committed to, but not fully implemented’ the required transparency standard.

The declaration on global governance, one of six issued by the two leaders on a range of issues following their meeting in the French town of Evian-les-Bains on July 6 ahead of the G-8 summit in L’Aquila, calls for the participants in the next G20 summit, due to be held in the US in September, to consider a new multilateral tax information exchange agreement, and a “peer review” process to encourage swifter implementation of OECD tax standards.

“It is essential that we maintain the momentum set by the London summit,” the Brown-Sarkozy declaration stated. “We are therefore clear that where jurisdictions have not reached the standard of information exchange agreement by March 2010, they should be subject to coordinated international counter-measures agreed in London.”

The declaration also stated: “We agree that the threshold of 12 tax information exchange agreements should be seen as a starting point in the move towards greater tax transparency. If progress stalls we will expect the threshold to rise above 12, bringing those who have not made further progress back into the ‘grey list.’”

“We will work together through the G20 to ensure that proposals are developed by the time of the next G20 Summit to ensure that developing countries can benefit from the new cooperative tax environment. We also call on the OECD to look at country by country reporting and the benefits of this for tax transparency and reducing tax avoidance.”

“The United Kingdom and France welcome the work underway to consider how the Global Forum on transparency and exchange of tax information can fully involve developing countries as equal participants and reform its governance, including to establish an effective peer review process to ensure effective implementation of the international standards, ahead of the Pittsburgh Summit. Successful development of this type of arrangement in the area of tax havens could provide a model for other areas where the OECD has a particular contribution to make to responding to global challenges.”

The declaration also proposed that the Financial Action Task Force (FATF) once again be used to ‘name and shame’ any “uncooperative” territories with regulatory failings, although it seems highly unlikely that the major onshore countries, which have also experienced major failings in their financial regulation systems, would be included on this list.

“France and the United Kingdom acknowledge the work undergone by the Financial Action task force to revise and reinvigorate the process aiming at identifying uncooperative jurisdictions and call the FATF to proceed swiftly with its new review process in order to publicly name the jurisdictions that pose risks to the integrity of our financial system and apply counter measures where necessary,” the declaration continued, adding:

“The fight against non-cooperative jurisdictions should also encompass prudential regulations. We call on the FSB (Financial Stability Board) to swiftly assess jurisdictions against international supervisory and prudential standards and report back by September on their progress in identifying uncooperative jurisdictions.”

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