A January meeting in Barbados went well, with all parties agreeing to mutual consent and co-operation over the OECD’s Harmful Tax Practices campaign.
It was hoped that at the end of the latest round of talks, the tax havens would commit to the three principles of transparency, non-discrimination and the effective exchange of information, and thus exclude themselves from the list of uncooperative nations to be published at the end of July.
However, the talks hit a stalemate over the new global tax forum, proposed by the tax havens to replace the OECD initiative.
The tax havens proposed a new global tax forum that they believed would be a ‘truly inclusive approach to developing global tax co-operation’ and would report to a governing committee consisting of ministers from participating countries.
The OECD already has its own global forum on taxation, but the havens have complained that it only reports to OECD ministers and the G7, and is not fully representative. The tax havens believe that if a tax forum is to have any legitimacy it will need to include representation from both developed and developing countries, outside the OECD membership.
However, the OECD rejected this proposal outright, considering it completely unreasonable. A source within the OECD, said: ‘Various positions had been proposed by the work group, but no agreement could be reached.’ He added that both sides would continue with their discussions after taking time out to regroup, and would return sometime in mid-February to resume their discussion.
So the momentum of Barbados appears lost. Despite agreement on the need for dialogue and co-operation on tax matters with cross-border implications, the OECD now acknowledges further discussion is needed to achieve a ‘mutually acceptable tax process’ and ‘truly inclusive global tax forum’.
The OECD claims to be in favour of any global forum so long as it is an effective, but its approval depends on how it is set up and under what structures and principles it operates. In fact it now seems highly unlikely the OECD will agree to a revamped global tax forum -especially since it would mean relinquishing control to countries outside the OECD.
Regardless of the outcome of further meetings, the OECD still plans to go ahead with the publishing of its blacklist of tax havens. Unless a tax haven agrees to co-operate fully – the Crown dependencies number among the 11 who have already done so – it will appear on the list due to be released on 31 July.
Though its work on tax competition dates from 1996, the OECD’s battle with tax havens began in earnest in November when the organisation named 35 offshore centres on a blacklist. The countries were threatened with economic sanctions and having favourable tax treaties scrapped if they did not co-operate with OECD by July 2001. The OECD later offered to remove the threat of economic sanctions if the tax havens signed a collective agreement to transparency and co-operation.
At that time the tax havens said OECD proposals were unclear and refused to give access to all tax information. The havens, while willing to co-operate in criminal cases, refused to disclose information to the OECD in civil investigations. They also claimed the July 2001 deadline was an unrealistic date.
But perhaps most compelling of all, was their argument that the OECD had ignored the harmful tax laws practised by its own member countries, who collectively represent the majority of the world’s developed nations.
So far only Jersey, Guernsey, the Isle of Man, Netherlands Antilles, Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius and San Marino have agreed to co-operate. The OECD hoped to add more names to the list, but following the meeting this weekend this is looking increasingly unlikely and its rejection of the tax haven’s proposals does not bode well for a speedy resolution to the row.
Next stop for the OECD is Asia in February. Representatives on both sides will be hoping talks on this occasion are more productive.
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