OECD HAVENS PLANS FACING COLLAPSE, SAYS OFFSHORE FINANCIAL CENTERS LOBBY

Daily Tax Report, Bureau of National Affairs

14 October 2003

By Lawrence J. Speer and Joe Kirwin (Luxembourg)

PARIS--Preferential treatment offered to several European banking centers under the European Union's savings tax directive has undermined the principle of a "level playing field" under which offshore financial centers agreed to participate in an ongoing crackdown on tax havens, and could threaten the future of the Organization for Economic Cooperation and Development-led project, a lobbying group representing offshore financial centers said Oct. 10.

OECD member countries are slated to meet representatives of offshore financial centers during an Oct. 14-15 meeting in Ottawa of the Global Forum on Taxation.

The International Trade and Investment Organization--which represents 17 of the offshore financial centers cooperating with the OECD--warned that discussions on implementing the banking secrecy and information exchange requirements of the OECD initiative have reached an "impasse."

"Further progress will be difficult" as long as OECD members Austria, Belgium, Luxembourg, and Switzerland continue to benefit from information exchange standards and timelines different than those offered to non-OECD members, the ITIO said.

Opt-Out for EU Members an Issue

The crisis between offshore financial centers and the OECD has been brewing for months, ever since the European Commission--the Brussels-based executive body for the 15-member EU--allowed Austria, Belgium, and Luxembourg to opt out of information exchange requirements in the EU's savings tax directive slated to go into effect in 2005.

Rather than requiring them to share banking information and cooperating with tax authorities, the Commission accepted a commitment from the three governments to implement mandatory withholding on interest income earned in accounts held by foreign nationals.

The OECD warned the Commission that the compromise would jeopardize its wider tax havens initiative, which has since 2000 sought to oblige offshore financial centers to share banking information and carry out other sorts of cooperation in tax matters with officials from OECD member countries.

The ITIO countries were slated to meet Oct. 12-13 in Ottawa, prior to the meeting with the OECD, to discuss a unified response to the "new realities" posed by the EU position, a source told BNA Oct. 10.

EU Officials Deny Impact on Initiative

European Commission officials Oct. 10 denied that the recently agreed terms of the European Union cross-border savings tax directive are a hindrance to the OECD negotiations.

"There is nothing in the terms of the EU savings tax directive that prevents the OECD agreement to go further when it comes to issues such as defining tax fraud or exchanging information," said Commission spokesman Jonathan Todd.

However, Todd acknowledged that the OECD had written in January to the European Commission calling for a delay in the EU savings tax directive (14 DTR G-6, 1/22/03), the final terms of which were agreed in June, because it would undermine the OECD negotiations. The EU savings tax agreement is supposed to take effect in 2005.

The EU agreed to let Luxembourg, Belgium, and Austria not commit to an information exchange system after failing to get Switzerland to agree to give up bank secrecy laws and commit to a system of information exchange.

OECD 'Unable to Deliver.'

"ITIO member countries have acted in good faith," said ITIO Chairman Glenroy Forbes. "The OECD has praised our cooperation, but is sadly unable to deliver its own key members," who are being allowed to avoid tax information exchange until 2010, at the earliest, Forbes said. "The Global Forum will need to consider whether to take the OECD's road, or the EU's, or whether to make no further progress," Forbes said. "For the ITIO, any way forward must be on a level playing field."

Richard Hay, co-chairman of the international committee of the Society of Trust and Estate Practitioners, seconded Forbes's statement, noting that the European Union "has undermined the OECD's harmful tax project. International finance centers have confirmed their willingness to support the principles of transparency and exchange of tax information on a level playing field basis, but EU finance ministers have handed Switzerland an effective veto on further OECD progress," Hay said.

For Hay, the question of cooperation should no longer be asked of offshore financial centers, but rather whether "the OECD's European Union members and Switzerland meet the OECD's information exchange standard."

The International Trade and Investment Organization (ITIO) brings together Anguilla, Antigua & Barbuda, Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Cook Islands, Isle of Man, Labuan (Malaysia), Panama, St. Kitts & Nevis, Samoa, St. Lucia, St. Vincent & the Grenadines, Turks & Caicos, and Vanuatu. The Commonwealth Secretariat, CARICOM, Pacific Islands Forum, Caribbean Development Bank, and Eastern Caribbean Central Bank have observer status with the group.

Further information on the group's interaction with the OECD is available at http://www.itio.org.

Copyright © 2003 by The Bureau of National Affairs, Inc., Washington D.C.

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