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The OECD will today publish a report on 'unfair tax competition' in its own member states and in offshore jurisdictions. Unlike last week's list of 15 jurisdictions published by the OECD's Financial Action Task Force, which focussed on what were deemed to be the least co-operative jurisdictions over the prevention of money-laundering, this week's report is directed at practices which threaten the collection of tax by the OECD's own members. It contains a list of more than 30 offshore centres, who are now told by the OECD that they have a year in which to improve their regimes before facing 'action' by the organisation's members. Here is the list:
|Aruba||Marshall Islands||Turks & Caicos Islands|
|The Bahamas||Monaco||US Virgin Islands|
|British Virgin Islands||Niue|
|Isle of Man||St Kitts & Nevis|
The OECD's analysis of its own members will cover various practices which have the effect of creating distortions in the international balance of tax collection, including the use of headquarters regimes, and tax breaks applied to leasing, fund management, shipping and investment.
It is not clear whether the report will be unanimously adopted by the OECD's 23 members. Last year Switzerland and Luxembourg, both members of the OECD, refused to sign a report on banking secrcy, although they did sign up to a more recent report on money-laundering. And last week Luxembourg went along with the EU's plan to exchange information on bank deposits and bond holdings.
Notable for their absence from the list of 'tax havens' are the six countries which escaped inclusion in last week's FATF list by writing 'letters of commitment' to the OECD, undertaking to conform to international standards of best practice for transparency and information exchange. The six are Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius and San Marino.
The OECD says that the use of IOFCs (International Offshore Financial Centres) to store wealth is expanding at a rapid rate. It is estimated that two-thirds of the world's assets are based in IOFCs, and that proportion just goes up over time. There are seven million dollar millionaires in the world, and such individuals are unlikely to put up with the high levels of income and capital taxes imposed by most OECD members. Of course, most of the people and corporations that flee high-tax countries do so legally, although for the OECDs finance ministers there is no such thing as 'legal' escape from tax. They probably feel that their nationals should have to pay taxes wherever they are in the world - only the US among large countries presently taxes its citizens on the basis of their nationality.
The 'harmful' practices which the OECD wants to root out include the availability of companies which don't have to reveal their shareholders or directors, 'designer' companies in which a corporation can choose what tax rate to pay, and the lack of information exchange or mutual assistance treaties between an IOFC and high-tax countries. This last is the most difficult point: hardly any IOFCs allow 'fishing expeditions' by foreign tax authorities; but if France's tax collectors want to find out whether Monsieur N Bonaparte has money in Mauritius (to pick a silly example) they can't do so unless they have grounds to suggest criminal behaviour on his part which they can show to the Mauritian authorities. Hence the EU's agreement last week to try to compel the key IOFCs to adopt an information exchange model.
Few people outside the OECD's Parisian headquarters think that the IOFCs are going to rush lemming-like over the precipice of information exchange. And if they don't? The OECD says darkly that 'measures' will be taken against them, perhaps including the abrogation of double-tax treaties. But most IOFCs don't have double-tax treaties, not having any tax in the first place. More compelling is the threat under current US legislation to cut off a jurisdiction in a financial sense if it is implicated in money-laundering.
It is going to be a most interesting period in the relationship between the high-tax and low-tax countries, and it's next to impossible to guess the outcome right now.
See Discussion Forum Topic: The OECD v Offshore - add your comments!.
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