Interview
Jeffrey Owens
Director, OECD’s Centre for Tax Policy and Administration
The next steps in tax transparency
The spring and summer of 2009 have been dominated in international financial centres by the jurisdictional response to the OECD’s publication of a dynamic table denoting tax transparency. The table was published first on the evening of April 2 at the conclusion of the G20 summit in London.
The Paris-based body has since updated the table several times: once to remove the four jurisdictions which were classified as uncommitted and non-compliant and known popularly as the black list.
The other revisions to the table have come as the OECD has recognised the achievement of individual centres in reaching in the quantitative benchmark of 12 agreements signed with major economies for the open and transparent bilateral exchange of tax information.
This has taken the form of new tax information exchange agreements (TIEAs) based on the OECD model or amendments to existing double tax treaties to facilitate tax transparency. Jeffrey Owens, director of the OECD’s Centre for Tax Policy and Administration, said: “The figure of 12 was selected in October of last year. At that time the vast majority of offshore financial centres had zero TIEAs in place. We wanted a target which was ambitious but achievable. But this is not a number game. The quality of the agreements must meet the standard and we will want to ensure that they are observed in practice.”
He added: “12 TIEAs or the equivalent is not the ceiling. We are hearing from certain jurisdictions (for example, the Caymans) that they want to build a network of tax transparency agreements and this is the type of commitment which we wish to see. In the future, we would expect to see the existing agreements functioning fully and for jurisdictions to be prepared to respond positively to requests for TIEAs.”
The April 2 table composed two other sections: the committed and compliant (commonly referred to as the white list) and the committed but not compliant (the grey list). The grey list is sub-divided into tax havens and other financial centres.
The principal driving force in the commercial arena for international financial centres since April 2 has been the status of jurisdictions – white list or grey list. The centres on the white list have made huge capital out of their committed and compliant status. Governments and regulators in white listed-jurisdictions have sought to preserve their top tier status by pressing forward with the number tax transparency agreements. BusinessIFC.com has reported throughout the summer on the key developments in this process.
Banks, insurers, fund managers and administrators, trust and company service providers, lawyers and accountants in white-listed states have used their commitment to transparency as their key mechanism to win business from grey-listed centres. Jersey is a key example. It launched its foundations product in mid-July 2009 pointing out to potential clients that Jersey is committed and compliant while the two largest vendors – Panama and Liechtenstein – may be committed but they are firmly non-compliant.
Ireland – white-listed since April 2 – has persuaded a range of companies to forsake Bermuda as the location for group holding companies and instead migrate to Dublin or nearby. This may slow after Bermuda’s elevation to the top tier. Lawyers and accountants – albeit in white-listed jurisdictions - have said that family offices in particular do not want the hassle of being in a grey-listed state.
Since April, Bermuda has been joined on the committed and compliant list by Bahrain, Luxembourg and Belgium. Two jurisdictions – the British Virgin Islands and the Cayman Islands – have signed 11 tax information exchange agreements. Cayman says it has initialed its agreement with New Zealand and hopes for signature by the end of July.
Some question has been raised that Cayman might not be elevated to the top tier on signature of 12 TIEAs but Owens dismisses this. "If the government of the Cayman Islands can demonstrate that it has signed 12 high quality tax transparency agreements then it will be admitted to the committed and compliant. The government of the Cayman Islands has said that it wants to sign a network of 30 such agreements. That would be very encouraging.”
He says there is progress among other jurisdictions on the grey list. “Samoa, for example, says it is in negotiation with six or seven major economies. But others, Panama comes to mind, have failed to implement a single agreement. The G20 identified a set of fiscal sanctions. Independently, the UK, Germany and France and others have said that they will introduce defensive measures. Financial centres need to be aware that governments will not tolerate offshore non-compliance."
Owens said that for committed jurisdictions the next step is active implementation of the agreements. Part of the process of achieving effective implementation will be peer reviews. At a keynote meeting in Los Cabos, Mexico starting on September 1, the definition and scope of peer review will be decided. “The Financial Action Task Force (FATF) conducts between six and eight of these every year. We would expect to do somewhat more of them. A small team of officials and representatives from member states would visit jurisdictions and make reports on their compliance with the agreements.”
The French president Sarkozy and the UK premier Brown have said that that they would like to see the March 2010 G20 as the decision point on sanctions. Throughout the autumn of this year and the early part of 2010, the rapid pace of negotiating and signing protocols to existing double tax treaties and new TIEAs should accelerate. Most jurisdictions on the grey list are keen to achieve the white list.
Owens says that the process will become tougher. The benchmark will be lifted. Larger networks of tax treaties will be driven by an international climate of zero tolerance on tax evasion. Peer review will determine the quality of compliance but Owens said for those countries which do not make any effort defensive measures will bite.
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