New approach needed to tackle tax havens

When heads of state gathered for the London G20 meeting last month to talk
about saving the world economy and doing something about tax havens they did so
following an unprecedented rush among offshore tax jurisdictions to sign up to a
host of treaties on information sharing.

However, it now turns out that the bilateral agreements between an offshore
location and a big nation were not the best way forward. Instead, what was
needed was a host of ‘multi-lateral’ agreements involving groups of nations.

Traditionally, bilateral tax information exchange agreements (TIEAs) are the
most common form of treaty, with provisions negotiated and agreed upon by two
tax jurisdictions.

Following the G20 summit, the global push for increased transparency and
co-operation has inevitably led to many jurisdictions rushing through agreements
in a bid to be removed from the OECD’s critical ‘grey list’ ­ that had still to
achieve standards for international tax reporting and information sharing ­ to
find a much sought-after place on a white list.

But bilateral arrangements can take a long time to come to fruition leaving
low-tax jurisdictions claiming that even if they wanted to, they can’t sign up
to them any faster. Recent agreements signed by the Isle of Man are a good
example. Some have taken from 2002 to put to bed.

The negotiation of tax treaties requires both resources and time, even for
wealthier nations. It is estimated there are up to 72 secrecy jurisdictions
around the world, and more than a hundred countries which could negotiate TIEAs.

Not only would multilateral TIEAs remove administrative barriers, but they
would ultimately allow a broader engagement between jurisdictions through the
automatic collecting of tax data in co-signing countries. The political agenda
of individual countries is also removed.

According to Malcolm Couch, of the Isle of Man tax department, multilateral
TIEAs are indisputably the way forward. ‘Multilateral has to be a model of the

‘Some of the countries with finance services have small administrations, so
to get involved in a large number of negotiations is a big commitment, which is
why the OECD is considering a multilateral approach and to build the capacity of
these smaller finance centers where there might be two or three people,’ he

‘We’ve been in the swim of this process for nine years and have been
negotiated with countries for almost as long… it takes a long time for countries
to line them up for a bilateral signing ­ there’s no quick fix,’ he adds.

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