OECD EASES CONDITIONS FOR TAX HAVENS: 'NAME & SHAME DEADLINE' POSTPONED TO FEBRUARY

Latin American, Caribbean & Central America Report, 11 December 2001

Caribbean tax havens have been given another reprieve by the OECD. The deadline for its 'shame and shame' reprisals has been set back until 28 February, and it has dropped one of the key criteria to define whether a country is considered uncooperative.

Both decisions came in a 13-page progress report on 'harmful tax competititon', released on 14 November.

The OECD's attempt to crack down on tax havens was launched in April 1998, with the publication of the report, Harmful Tax Competition: An Emerging Issue. It recommended a series of measures to prevent other countries from attracting OECD businesses with tax concessions.

A key criterion to determine whether a jurisdiction was to be considered a tax haven was that of 'ring-fencing', also known as the 'no substantial activities' rule. This refers to the grant of tax concessions to businesses or persons who have no substantial activities in the jurisdiction. The OECD also demanded 'transparency' and 'effective exchange of information' -which basically means granting access to bank records.

Just over two years later, in June 2000, the OECD issued a blacklist of jurisdictions deemed to be engaging in 'harmful tax practices'. This included very nearly all of the Caribbean. The OECD issued a deadline: compliance with its standards by July 2001, under pain of sanctions.

In April this year, in a meeting in Paris, it moved the deadline to 30 November, and instead of sancions, threatened to 'name and shame' the countries that did not meet its conditions.

As mentioned earlier, a fortnight before that period expired the deadline was moved again, and the 'ring-fencing' criterion was dropped -though those of 'transparency' and 'effective exchange of information' were retained.

In its progress report, the OECD refutes the charge made by several Caribbean governments that it was attempting to dictate policy to them. 'The OECD project,' it says, 'does not seek to dictate to any country what its tax rate should be, or how its tax system should be structured. It seeks to encourage an environment in which free and fair tax competition can take place.'

The report also acknowledged the contributions made by a Joint Working Group of the Commonwealth and the OECD, set up in Barbados earlier this year, which met in Paris in March to 'attempt to find a mutually acceptable political process by which these principles of transparency, non-iscrimination and effective exchange of information could be turned into commitments.'

It is worth noting that the OECD members are not unanimous in their support for this campaign against 'harmful tax practices'. Already at the time of the first report in 1998, Luxembourg and Switzerland abstained. The latter insisted on noting in the progress report that its abstention continues to apply. The former criticised the progress report for backing down on 'ring-fencing'.

Two other countries -Belgium and Portugal- abstained from the progress report.

Only five converts since 2000
The International Tax and Investment Organisation (ITIO), the organisation set up by developing countries last March to counter the OECD campaign, says that the OECD has been hyping the advances it has made. It focuses on the claim that 'there are now a total of 11 committed jurisdictions', which spin-doctors have played as meaning that 11 of the 35 blacklisted countries had decided to comply. Actually, 6 had 'committed' before the blacklist was issued, so only five have signed up since 2000.

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