Offshore tax havens reject calls for transparency

by Samanta Sen

London, 12 Jul 2001 (IPS) - A confrontation between the Organisation for Economic Co-operation and Development (OECD) and a group of offshore tax havens looks set to continue despite a compromise hammered out last weekend.

Most members of the Paris-based OECD supported the compromise deal on “harmful tax practices” in so-called tax havens. Under the compromise, the OECD would cut down its demands and give these jurisdictions until 2003 to comply. That extends the earlier deadline of 31 July this year.

Some of these jurisdictions - not all jurisdictions are independent countries - have signed up to OECD demands for transparency and exchange of information, an OECD spokesperson says. But the OECD faces strong opposition to sanctions against the rest from several international organisations. The opposition from many of the smaller countries is led by a group of 54 nations that was once a part of the British Empire. Many of the small countries facing sanctions are Commonwealth members.

The OECD has given up its demand for “ring-fencing,” which means that these jurisdictions can continue to give tax incentives to foreigners as before. “This compromise is not fully acceptable,” Sir Ronald Sanders, who has been leading negotiations on behalf of many of these jurisdictions with the OECD, told IPS this week.

“And if by their demand for exchange of information they mean they can just ask for information about any account without going through our courts, and we get bound to give it, we are not going to comply,” he said. The jurisdictions also will not give in on transparency as understood and demanded by the OECD, Sir Ronald said. “The OECD wants information at will on any account; who owns it, who the family members are ... everything about it,” he pointed out. “That is a violation of privacy laws, and even of human rights.”

The opposition to the compromise proposal looks set to deny agreement that has been delayed by opposition from within the OECD. Last week, Spain said it would veto the proposal. The OECD could not go public with the proposal as a result.

Spain blocked the deal with its demand that Britain take responsibility for ending harmful tax practices in Gibraltar, a jurisdiction of rocky islands off Spain that was occupied by the British in 1704. “This issue has nothing to do with the terms of the compromise, but it has held up the agreement,” the spokesperson for the OECD told IPS.

Earlier, the new US administration had strongly backed the argument for sovereignty, presented by several of the smaller nations that had been targeted by the OECD. John Taylor, US Treasury under-secretary for International Affairs, spelt out the US administration’s opposition last month to telling countries how to run their tax systems. Taylor also confirmed that the US administration was looking for a “redirection” of the OECD’s plans for action against alleged tax havens. Switzerland and Luxembourg have refused to endorse the OECD move.

The jurisdictions fighting the proposals argue that the OECD has taken different views on tax havens provided by its own member states. A report prepared by the OECD on harmful tax practices listed 35 jurisdictions outside the OECD as tax havens. It listed 47 regimes of member OECD countries but these were described not as tax havens but as “preferential tax regimes”.

The OECD introduced its harmful tax initiative in 1998 and issued one year’s ultimatum in June last year asking listed countries to comply or face sanctions.  The OECD defines tax havens as jurisdictions with no taxes or only nominal ones, ineffective exchange of information, lack of transparency, and no substantial activities so that investment or transactions are “footloose” and are purely tax driven.

Leaders from these jurisdictions accuse the OECD of deliberately confusing their initiative with the work of the Financial Action Task Force (FATF) that was set up to target money laundering. “It is very important to remember that the OECD initiative is not the same thing as the initiative against money laundering,” says Sir Ronald. “The OECD is trying to camouflage their move and give it respectability by calling it a move against money laundering.”

The OECD list is separate from the FATF blacklist of countries that it says are centres for money laundering. The lists keep changing as countries and jurisdictions are added to each or taken off. Currently, the lists have only a limited overlap.

The FATF list of 15 currently includes Russia, Egypt, Guatemala, Hungary, Indonesia, Israel, Lebanon, Myanmar, Nauru, Nigeria and some smaller jurisdictions while the OECD list names 41 countries, most of them small territories or jurisdictions.

“The two do overlap because tax havens are ideal for money laundering because of their lack of transparency,” the OECD spokesperson told IPS. The FATF blacklist is separate from the OECD list “but we are often looking at the same places,” the OECD spokesperson said. Several international groups have opposed the OECD for dictating to the small non-OECD countries rather than working with them.  “They are talking the language of dictation, not of consultation,” Ben Coleman from the International Tax and Investment Organisation (ITIO) told IPS.

He said the OECD must involve the smaller countries in discussions properly “or face the collapse of its so-called harmful tax competition initiative.” Coleman said it is “thoroughly silly to exclude countries who have more hands-on experience of offshore issues than most OECD members.”

For many of the smaller nations this is really an issue of sovereignty, said Sir Ronald. “If we let the OECD dictate to us on this, then we’ve opened our doors to further infringement,” he said. “We will not be colonised by some rich man’s club.” – SUNS4936

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