Crack Down on Tax Havens

In response to the G20’s pledge in April to take action against “non-cooperative” territories in order to maintain stability in the financial system, the Organisation for Economic Cooperation and Development (OECD) has published a list of jurisdictions that it believes have not implemented internationally agreed standards of tax cooperation.  Prime Minister Gordon Brown presented the G20 communiqué, stating “we stand ready to deploy sanctions to protect our public finances and financial systems,” and concluding with the statement “the era of banking secrecy is over.”

The list is split into three parts.  The first list contains jurisdictions which are deemed to have “substantially implemented” the agreed tax cooperation standard.  Not surprisingly the largest economies of the G20 group appear on this “white list”, such as the UK, the US, Germany and France.  The list however also includes some offshore and low tax jurisdictions, some of which have been vilified in the past by politicians and the media alike, such as Barbados, Cyprus, Guernsey, Ireland, Isle of Man, Jersey, Malta, Mauritius, Seychelles, the United Arab Emirates and the US Virgin Islands.

The vast majority of offshore and low tax territories (categorised by the OECD as “tax havens”) appear in the second list, consisting of countries that have committed to but not yet implemented the standard.  Many of these jurisdictions have recently been busily concluding bilateral tax agreements in a bid to stave off the G20 sanctions threatened by Messrs Brown and Obama, although it is not clear what exactly will happen should any sanctions be applied. Notable inclusions in this list are Austria, Belgium, Luxembourg and Switzerland, although they have been termed “other financial centres” and therefore escaped the ignominy of being officially classed as “tax havens.”.

The last list names those jurisdictions which have not committed to the standard and will presumably face sanctions of some sort unless they fall into line.  At the moment only four jurisdictions fall into this category, namely Costa Rica, Labuan, Philippines and Uruguay.

Commenting on the outcome of the G20 meeting and the publication of the OECD blacklist, David Harvey, Chief Executive of the Society of Trust and Estate Practitioners, expressed his concern that historically standards of regulation have been applied selectively and indeed some of the worst offenders were members of the G20 itself.  He said that the IMF had made it clear that large economies often lagged behind well-regulated offshore centres.