OECD On Agenda As Commonwealth Ministers Meet In Malta

Robert Lee, Tax-news.com, London

21 September 2000

Commonwealth finance ministers have been meeting in Malta this week for their annual conflab with debt, international financial crisis prevention and tax havens on the menu for discussion. The upshot of the meeting is that officials are now more hopeful of building a constructive dialogue with the OECD over the issue.

The Commonwealth has made no secret of the fact that it is unhappy with the OECD's recent assault on tax havens and its threat to introduce sanctions if they do not clean up their ways within a year. Of course, fifteen members of the Commonwealth are among the 35 nations on the OECD's hitlist of supposed "harmful" tax havens, which was published in June. Before the Malta meeting, Rumman Faruqi, head of the Commonwealth's Economic Affairs Division, had said: 'The problem is that the OECDs proposals are very soft on OECD countries. So rather than acrimony and sanctions, we need dialogue. After all, some of our members could see their gross domestic product fall 25 percent if these sanctions hit.'

The Commonwealth's deputy director general for economic affairs, Veronica Sutherland, has confirmed that discussions in Malta have been fruitful. She said: 'I think the dialogue is now entering slightly calmer waters. We have made a small positive step on this issue because there has been a recognition of the need for dialogue.' However, she also said that a solution to the tax havens problem was not in sight.

The Commonwealth's argument, which is pretty strong it must be said, is that offshore financial services have helped boost national income in many small island nations that would otherwise be much poorer. Moreover, some Commonwealth members such as Barbados say it is their sovereign right to set their own tax rates rather than be dictated to.

Commonwealth Secretary-General Don McKinnon has been pretty blunt and has accused developed countries of hypocrisy. He said they had encouraged small island and developing countries during the 1980s and 1990s to expand their financial service industries to counter declining income from primary production. He said: 'Now these countries face potentially devastating effects on their economies as a result of the new OECD proposal.'

Britain's response to the ongoing OECD brouhaha will be seen when Chancellor Gordon Brown addresses the Malta conference. He is unlikely to make many friends in the Commonwealth camp. When the OECD published its list, the UK called it a "vital step forward...in ending harmful tax practices that encourage tax evasion, distort capital flows and erode national tax bases." In addition, Brown last year moved to end so-called "designer" tax regimes in Britain's dependent territories in a bid to stem substantial and growing tax revenue losses and to enhance Britain's standing with international bodies such as the OECD.

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