Tax havens may face higher barrier to 'white list' status

Offshore financial centres will face renewed pressure in their bid to achieve and retain “white list” status for tax compliance, after a meeting of global heads.

Financial regulators gathered to debate the future standards for admission to the tax transparency compliance list, the scope of peer reviews for these countries, and the nature of fiscal sanctions to be applied to the non-compliant.

New criteria for revised standards were set at a meeting at Los Cabos in Mexico on 1 and 2 September.

In April, the OECD pub-lished a list identifing which jurisdictions were compliant or non-compliant with its standard on tax transparency. This so-called committed and compliant group became known as the white list.

Centres that did not meet the OECD’s criteria but said they would, were grouped together as the grey list. The ensuing months in offshore markets have been dominated by the battle between white and grey list jurisdictions.

Several grey-listed centres worked furiously to meet the benchmark of signing 12 tax information exchange agreements (TIEAs) or making equivalent amendments to their network of double tax treaties with OECD members. Jeffrey Owens, director of the OECD’s Forum of Tax Policy, described the initial benchmark as “both demanding and achievable”.

The scene was set for the long awaited landmark meeting of the Global Forum on Tax Transparency scheduled to meet in Los Cabos. But when Hurricane Jimena struck Baja, California, the military had to step in with three aircraft to remove the important participants to a hastily arranged venue in Mexico City.

Some wanted to raise the threshold for admittance to the OECD’s white list. It stands now at 12 TIEAs or equivalent models recognised by the OECD.

There was much speculation that the OECD would want to set the barrier higher, however, this objective appears to have been lost ­ at least for the short term ­ in favour of the enthusiastic adoption of peer review.

The debate was moving from quantitative to qualitative assessment as the summer progressed. The requirement for a dozen TIEAs is, by its nature, quantitative. Owens said that the barrier would be set higher for jurisdictions but the focus would be on the quality of compliance, not on numbers.

There was almost universal agreement in Mexico on the adoption of peer review. It will be based on the model introduced by the Financial Action Task Force for assessment by jurisdictions of compliance with anti-money laundering standards.

The OECD has been clear that it sees the process as more than a numbers game.

12 TIEAs or the equivalent is not the ceiling,” said Owens. “We are hearing from certain jurisdictions ­ for example, the Caymans ­ that they want to build a network of tax transparency agreements and this is the type of commitment which we wish to see. In the future, we would expect to see the existing agreements functioning fully and for jurisdictions to be prepared to respond positively to requests for TIEAs.”

The Los Cabos meeting was viewed as pivotal in terms of expanding the basis of inclusion in the white list to more agreements signed and observed.

The figure of 20 TIEAs or their equivalents was mooted among accountants and lawyers. However, Owens had explained that peer review was an element in retaining a white listing. “The Financial Action Task Force conducts between six and eight of these every year. We would expect to do somewhat more of them. A small team of officials and representatives from member states would visit jurisdictions and make reports on their compliance with the agreements,” he said.

John Cullinane, Deloitte tax partner had sensed its direction in his pre-event comments: “Ultimately, the OECD will want to lift the barrier, not only in the sense of numbers of agreements signed but also in their observance.

“I don’t know if the Los Cabos meeting will set higher quantitative numbers at this point but over a period that will happen. The OECD will want greater networks of agreements. The peer review process will also give an appreciation of the quality of compliance.”