Finance Ministers of the G7 group of rich countries, meeting in Washington over the weekend during the annual IMF and World Bank get-together, issued a surprisingly strong endorsement of Gordon Brown's information-exchange proposals which had been floated at the EU's ECOFIN talks in Lisbon a week ago. Last week, the OECD also backed the cause of information-exchange with a unanimous declaration on banking secrecy.
The Finance Ministers
agreed to work rapidly towards an international agreement on exchange
of information obtained by tax authorities from banks. The adoption
of such a clear position on this issue by the G7 shows that Germany
has shifted its position considerably in the last few weeks. During
the EU withholding tax negotiations which culminated in a bad-tempered
meeting in Helsinki last December, Germany led the pro-withholding
troops battling unsuccessfully to coerce the UK into agreeing
the tax. When the UK first proposed information exchange as a
realistic alternative (it was always included as such in the original
Directive), Germany, which has strong banking secrecy laws, was
very negative.
The UK Treasury was making satisfied noises over the weekend, although it remains an open question whether Gordon Brown has proposed information-exchange as a fox which the world's finance ministers can happily chase while withholding tax withers on the vine, or whether he is sincere. From the beginning, the Brits have insisted that information exchange has to apply internationally if it is to be introduced in Europe. Many observers see little likelihood of an effective international agreement being reached without years of talks, although it must be said that the OECD's declaration last week has substantially increased the chances of success.
The UK Chancellor is due to speak in New York today and will challenge the EU's June summit to make a firm commitment to the information exchange principle, throwing the spotlight on little Luxembourg, which would be able to veto such a proposal, but will have an agonising choice to make between its EU credentials and its livelihood.
All told, it does now seem likely that some kind of common international position will be hammered out in the next few months; but the devil will be in the detail of exactly what information banks will be required to give, in what circumstances, and in response to what types of enquiry from tax authorities.
Offshore jurisdictions in the ambit of EU and OECD countries will probably have to go along with any such agreement, although they are more or less powerless to influence the negotiations. It's not an issue on which, say, Jersey or Monaco would go to the wall and seek formal independence. Those IOFCs which are already fully independent countries, many of which don't have direct taxation, and thus don't recognise fiscal crime, will probably be able to stay outside the scope of an agreement, and will thus gain a further, quite significant advantage as against the jurisdictions which have to toe the line. It will be an interesting summer in the world of offshore!
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