The International Tax and Investment Organisation (ITIO) has issued its comments on the OECD's long-awaited 2001 Progress Report on its 'Project on Harmful Tax Practices', which had been delayed since July by Spain in an attempt to gain advantage in its dispute with Gibraltar, and was finally issued on Wednesday.
The ITIO is a grouping of small and developing economies (SDEs) set up in March 2001 to help SDEs respond to global tax and investment challenges. The OECD's rebranded Project on Harmful Tax Practices (it was formerly called the Harmful Tax Competition Initiative) listed 35 offshore jurisdictions in 2000, and setting up the ITIO was one of the ways in which the jurisdictions fought back.
Commenting on behalf of the ITIO, developing economies, Lynette Eastmond, Director of the ITIO Secretariat, said:
"The ITIO has sought consistently to persuade the OECD that talking and listening to small and developing economies (SDEs), rather than seeking to dictate to them, could improve the process. We are delighted at the OECD's public acceptance of this approach . The ITIO also welcomes the OECD's removal of the 'no substantial activities' criterion for deciding whether to label a tax system harmful. It explicitly considers the development implications of these challenges.
"We are intrigued by the report's suggestion that development assistance
may be provided to help SDEs comply with OECD demands , and look forward
to details of what this will mean in practice.
"There is a general sense coming out of the report that the OECD
is starting to acknowledge comments about the lack of a level playing
field in the whole process . The ITIO remains particularly concerned,
however, about the lack of a level playing field in developing and implementing
international standards on the exchange of information.
"We would like to know whether OECD members are prepared to state that uniform standards must be universally adopted, without discrimination. Are they and other developed economies prepared explicitly to confirm their intention of abiding by the standards demanded of small and developing economies? Such reassurances would help build further confidence in the process.
"We note that yesterday's report was not signed by Belgium and Portugal,
and that Switzerland and Luxembourg, also OECD members, dissented from
the OECD's 1998 Report. Over ten per cent of the OECD's 30 members, including
the leading onshore competitors with offshore centres, are now refusing
to comply with the demands their organization is making of small countries.
In that sense, the playing field looks even less level.
"A final word on sanctions. The close relationship between taxation,
inward investment and trade measures should not be ignored. There is a
likelihood that any sanctions imposed as a result of the OECD tax initiative
could prove incompatible with multilateral trade obligations.
"The ITIO is surprised that in the current global environment, where it has been acknowledged that multilateral solutions based on the rule of law must be found for international issues, the OECD would still be considering 'naming and shaming' a few small, developing countries.
"But we hope that matters never reach that stage. The ITIO shares OECD members' stated desire for 'change through dialogue and consensus' . In that respect, with all its flaws, today's report should be seen as an important step forward."
The ITIO currently comprises Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Cook Islands, Malaysia, St Kitts & Nevis, St Lucia, Turks & Caicos and Vanuatu. The Commonwealth Secretariat, Pacific Islands Forum Secretariat and CARICOM Secretariat have observer status.
The four OECD member countries who have refused to sign up to the OECD's project (Switzerland, Luxembourg, Belgium and Portugal) include the principal onshore competitors for the offshore world, and account for many of the tax neutral structures run onshore within the OECD. Offshore centres are concerned that if they are not obliged to adhere to the same standards as offshore centres, business will just migrate to these OECD members, which raises further doubts about the fairness of the process.
Similar problems are raised by the exclusion of offshore centres such as Hong Kong, Singapore and Dubai from the OECD's project.
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