15 November 2001

ITIO welcomes OECD report with reservations
Questions about level playing field remain


The Organisation for Economic Cooperation and Development (OECD) yesterday issued the long-awaited 2001 Progress Report for its renamed "Project on Harmful Tax Practices" (formerly called the "Harmful Tax Competition Initiative"). Commenting on behalf of the International Tax and Investment Organisation (ITIO), a grouping of small and developing economies, Lynette Eastmond, Director of the ITIO Secretariat, said:

"The ITIO has sought consistently to persuade the OECD that talking and listening to small and developing economies (SDEs), rather than seeking to dictate to them, could improve the process. We are delighted at the OECD's public acceptance of this approach . The ITIO also welcomes the OECD's removal of the 'no substantial activities' criterion for deciding whether to label a tax system harmful.

"We are intrigued by the report's suggestion that development assistance may be provided to help SDEs comply with OECD demands , and look forward to details of what this will mean in practice.

"There is a general sense coming out of the report that the OECD is starting to acknowledge comments about the lack of a level playing field in the whole process. The ITIO remains particularly concerned, however, about the lack of a level playing field in developing and implementing international standards on the exchange of information.

"We would like to know whether OECD members are prepared to state that uniform standards must be universally adopted, without discrimination. Are they and other developed economies prepared explicitly to confirm their intention of abiding by the standards demanded of small and developing economies? Such reassurances would help build further confidence in the process.

"We note that yesterday's report was not signed by Belgium and Portugal, and that Switzerland and Luxembourg, also OECD members, dissented from the OECD's 1998 Report. Over ten per cent of the OECD's 30 members, including the leading onshore competitors with offshore centres, are now refusing to comply with the demands their organization is making of small countries. In that sense, the playing field looks even less level.

"A final word on sanctions. The close relationship between taxation, inward investment and trade measures should not be ignored. There is a likelihood that any sanctions imposed as a result of the OECD tax initiative could prove incompatible with multilateral trade obligations.

"The ITIO is surprised that in the current global environment, where it has been acknowledged that multilateral solutions based on the rule of law must be found for international issues, the OECD would still be considering 'naming and shaming' a few small, developing countries.

"But we hope that matters never reach that stage. The ITIO shares OECD members' stated desire for 'change through dialogue and consensus'*. In that respect, with all its flaws, today's report should be seen as an important step forward."

NOTES TO EDITORS

1. 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.

2. 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.

3. The four OECD member countries who have refused to sign up to the OECD's project (Switzerland, Luxembourg, Belgium and Portugal) include the principal onshore competitors for the offshore world, and account for many of the tax neutral structures run onshore within the OECD. Offshore centres are concerned that if these OECD countries are not obliged to adhere to the same standards as offshore centres, business will just migrate to these OECD members, which raises further doubts about the fairness of the process.

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

5. The OECD's progress report is available online at http://www.oecd.org/pdf/M00021000/M00021182.pdf

*OECD report, para. 49.

EXTRACTS
Extract 1
"The dialogue between the OECD Members and the tax haven jurisdictions has resulted in the OECD having a better understanding of the concerns of the jurisdictions regarding the commitment process and participation in the harmful tax practices work (para 23).

Extract 2
"The Committee has also explored with the Development Assistance Committee the forms of assistance that may be appropriate to help committed jurisdictions further develop their economies as they move to eliminate harmful tax practices. Other international organisations and development banks, such as the World Bank, have also offered to assist in this effort. OECD Member countries will continue to examine how their assistance programmes can, on a bilateral basis, be re-targeted to assist committed jurisdictions and to encourage international organisations to take into account the special needs of committed jurisdictions in the design of multilateral assistance programmes" (para. 46).

Extract 3
"The Committee recognises that the potential application of a framework of co-ordinated defensive measures to tax havens prior to their potential application to OECD Member countries raises concerns regarding a level playing field between Member countries and tax havens. Therefore, the Committee agreed that a potential framework of co-ordinated defensive measures would not apply to uncooperative tax havens any earlier than it would apply to OECD Member countries with harmful preferential regimes" (para 32).

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