OECD Encircles Asian Low Tax Centres

by Ulrika Lomas, Tax-News.com, Brussels

16 March 2009

The Asian financial powerhouses of Hong Kong and Singapore, under pressure from the major western governments ahead of next month's G20 meeting in London, have agreed to strengthen information exchange provisions for tax purposes, and in the case of Singapore, commit to the OECD standard on fiscal transparency.

While Hong Kong and Singapore cannot be considered 'offshore' in the truest sense of the word, the fact that they have both in recent days decided to issue legislative undertakings that cross-border information exchange provisions will be strengthened is perhaps an indication of how far the OECD and its member states intend to take the next purge of the offshore world.

“Ending the abuse of banking secrecy arrangements that facilitate tax evasion is part of a broader drive to clean up one of the more controversial sides of a globalized economy,” said OECD Secretary General Angel Gurria. “The support of the G-20 for efforts to improve transparency and exchange of information has underscored their relevance for both developed and developing countries," he added.

Hong Kong's Financial Secretary John Tsang announced in his budget speech in February that the territory would seek to both extend its double tax treaty network and put in place measures that would allow more information to be exchanged with treaty partners.

"In recent years, our major trading partners have raised the requirements on the exchange of tax information under such agreements. Our existing legislation has not kept pace with this development," Tsang said.

"To further extend our network of such agreements, we consulted the industry in mid-2008 on liberalising the arrangements for the exchange of tax information. I believe that the business and professional community generally agrees that Hong Kong should align its arrangements for the exchange of tax information with international standards so that we can enter into such agreements with more economies," he added.

Hong Kong plans to present new legislative proposals by the middle of 2009.

Meanwhile, Singapore's Ministry of Finance announced on March 6 that it would introduce draft legislative amendments in the middle of 2009 that would enable the government to extend further cooperation on information exchange through its double tax agreements (DTAs) and allow it to negotiate and conclude further DTAs.

"The decision to endorse the OECD standard is in keeping with Singapore's role as a trusted centre for finance and a responsible jurisdiction, with strong and consistent regulatory policies and a firm commitment to the rule of law," the ministry stated. It added however, that the standard would not erode Singapore's system of banking confidentiality, "which does not shelter criminals."

"The standard does not preclude countries from having such confidentiality or privacy safeguards, and some OECD countries in fact have such safeguards under their common or civil law systems. Singapore will implement the standard through our DTAs to assist on bona-fide requests for information rather than information fishing," the ministry explained.

Aside from the Asian centres, other jurisdictions that are more recognisably 'offshore' have already announced that they intend to fall into line with the OECD's standards, or that steps have been taken to ensure that they remain near the top of the financial transparency league. Andorra and Liechtenstein have both committed themselves to the OECD standard, while the Cayman Islands has announced that it will sign tax and information exchange agreements (TIEAs) with seven Nordic economies on April 1, 2009, bringing to eight the number of such agreements that it has with other economies. Meanwhile, the Isle of Man has boosted its status as one of the most reputable financial centres (offshore and onshore) by entering into a TIEA with Germany, taking to 13 the number of such pacts that it has with other economies.

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