12 February 2002

Small countries seek OECD commitment to level playing field - Letter to OECD Secretary-General.

As tax deadline approaches, ITIO wants level playing field assurance

With only two weeks to go before the deadline set by the Organisation for Economic and Development (OECD) for small and developing countries to commit to its controversial "harmful tax competition" initiative, the International Tax and Organisation (ITIO) is asking the OECD for a reciprocal commitment to a level playing field and an end to double standards.

In a letter to OECD Secretary-General Donald Johnston, ITIO Director Lynette Eastmond asks the OECD countries to set a new deadline for making their own public commitment to observing the principles of a level playing field.

Speaking on behalf of the ITIO, she notes that small and developing countries "have long objected to being asked to implement standards that OECD member states themselves refuse to accept." In particular, the ITIO Director recalls, the ITIO has "long called for a level playing field and the elimination of the double standards implicit in the OECD's 'harmful tax competition' initiative."

Pointing out that ITIO members are still considering their position on the OECD's tax project, Ms Eastmond poses the fundamental, as yet unanswered, question to Mr Johnston: "May I ask on behalf of the ITIO when you anticipate all OECD members making a public commitment to observing the principle of a level playing field?"

Ms Eastmond explains that, for the ITIO, a level playing field "does not just mean implementing standards on an equal basis. It also means involving all countries in the process of developing the standards." The ITIO also wants a level playing field "not just for taxation and corporate vehicle issues but across all OECD initiatives relating to trade in services."

NOTES TO EDITORS

1. The ITIO's letter to Secretary-General Johnston is set out below. It was sent on 11 February 2002.

2. The International Tax and Investment Organisation (ITIO) is a grouping of small and developing economies (SDEs) set up in March 2001 to help SDEs respond to global tax and investment challenges. It explicitly considers the development implications of these challenges.

3. The fourth meeting of the ITIO took place in Vanuatu, South Pacific, on 4-6 February 2002.

4. The ITIO currently comprises Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Cook Islands, Malaysia, St Kitts & Nevis, St Lucia, Turks & Caicos and Vanuatu. The Commonwealth Secretariat, Pacific Islands Forum Secretariat and CARICOM Secretariat have observer status.

5. The OECD has set a deadline of 28 February 2002 for dozens of SDEs to make a commitment to its controversial "harmful tax competition" initiative or face "defensive measures" from OECD members acting together or individually.

6. New standards for exchange of information are currently being developed in OECD working groups, and new standards on related matters issues can be expected to follow. Non-OECD countries will be required to abide by these on pain of sanctions but there is no guarantee that OECD countries will themselves observe the new standards.

7. To make matters worse, four OECD member countries - Switzerland, Luxembourg, Belgium and Portugal - have refused to sign up to the OECD's tax project. These include the principal onshore competitors for the offshore world, and account for many of the tax neutral structures run onshore within the OECD. ITIO members are concerned that if these OECD member countries are not obliged to adhere to the same standards as offshore centres, business will just migrate to the OECD. One of the principal outcomes of the OECD's controversial tax project could thus be to win more business for its own members at the expense of small and developing economies.

8. Similar problems are raised by the exclusion of offshore centres such as Hong Kong, Singapore and Dubai from the OECD's project.

9. Whatever impression the OECD may give, it has nowhere explicitly stated that its members will abide by all the standards being demanded of others.

10. Indeed, an OECD November 2001 report, "Behind the Corporate Veil: Using Corporate Entities For Illicit Purposes", clearly accepts two sets of standards for onshore and offshore jurisdictions. It also ignores controversial corporate vehicles in OECD member states, such as the Limited Liability Companies (LLCs) and Limited Liability Partnerships (LLPs) in the USA which were so extensively used by Enron.

ITIO letter to OECD asking for commitment to level playing field, 12 February 2002

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