Recent developments in the US may make many around the world think that the Organization for Economic Cooperation and Development's so-called 'harmful tax competition' project is on the brink of extinction. If only we were so lucky.
The OECD has spent almost every day since the 10 May statement of Treasury Secretary Paul O’Neill trying to convince the US to agree to a slimmed down version of their original plan. Secretary O’Neill distanced the US from the OECD plan because it was misguided and over reaching. Tax competition is a liberalising force in the world economy, forcing governments to be more fiscally responsible lest they drive economic activity to lower-tax environments.
The OECD initiative seeks to change the rules of worldwide commerce and taxation to benefit fiscally uncompetitive nations. This effort would impose a tax structure on the entire world that would greatly restrict the ability to shift economic activity to jurisdictions with policies that reward private-sector wealth creation.
But the OECD initiative represents more than just bad tax policy. The OECD project is wrong on many levels. It endangers fiscal sovereignty; it attacks financial privacy by creating a global network of tax police; it violates international trade agreements and almost certainly violates world trade organisation obligations; it disrupts economic development of third world countries; and it will most definitely increase crime by depriving developing nations of a competitive financial services industry.
It is safe to say, as a result of O’Neill’s statement, that the anti-tax competition phase of the OECD assault on low-tax countries has come to end.
However, an even more dangerous phase two of the battle has begun. We are now fighting over information exchange. Who sets the conditions under which it is legitimate for governments to suspend financial privacy and divulge confidential information to other governments? This battle will be fought over the next few months and we look forward to working with policy makers in the US and around the world to insure that our financial and personal privacy is protected.
But today, since the US is not playing ball with the OECD, I call on OECD secretary-general Donald Johnston to lift the threat of economic sanctions against low tax countries like Jersey and Guernsey and stop blacklisting these and other counties for believing in tax competition, financial privacy and fiscal sovereignty.