The Organisation for Economic Co-operation and Development (OECD) has released a seminal report on tax information collection and exchange practices in 82 countries. The principal achievement of this long-awaited report, Tax-Cooperation — Towards a Level Playing Field,1 is 200 pages of tables reviewing and effectively comparing information collection and exchange practices in countries ranging from Switzerland to the Cayman Islands to the United States. This data is highly informative for anyone seeking a summary view of a jurisdiction's position on confidentiality (or “transparency,” depending on one's perspective) of client financial records.2
The report is part of an ambitious OECD program seeking global data tracking and exchange to improve tax enforcement for its members. But it fails to tackle two major obstacles that may doom the OECD's efforts. First: non-OECD member countries lack incentives to shoulder onerous and expensive burdens in the interests of conferring benefits exclusively to high-tax countries.3 Second: large OECD members such as Switzerland and the United States have been reluctant to take the medicine that the OECD prescribes. The report nods in the direction of these roadblocks — then sidesteps them. There's no real discussion and certainly no suggestions for solutions.
Talk of comparative standards is not an arid debate over regulatory policy. This is nothing less than a global war for dominance in the offshore financial industry. Big money is at stake. Financial services generate US$2 trillion in annual revenue. This figure is forecasted to triple by 2020 and to account for 10 percent of global GDP.4 Yet international financial services are highly mobile, and consumers readily shift jurisdictions to pursue regulatory arbitrage opportunities. The new report therefore will help shape the odds for success or failure in one of the most profitable sectors of the global economy.
Meanwhile, other powerful voices are making themselves heard about this global market — and seem to be trying to tip the balance in their country's favor. For example, a U.S. Senate report, Tax Haven Abuses: The Enablers, The Tools and Secrecy, released Aug. 1 by the Senate's Permanent Subcommittee on Investigations (chaired by Norm Coleman, R-Mich.) called for sanctions against offshore “tax havens” like the Cayman Islands that protect client confidentiality. Yet this Senate report failed to demand such transparency from U.S. states that are essentially doing the same thing.5
THE STORY SO FAR
Conduct that encourages, facilitates or is oblivious to tax evasion in another jurisdiction is morally reprehensible and often criminal. But international law is clear that no jurisdiction bears a unilateral obligation to assist another jurisdiction in collecting taxes.6
The OECD, an exclusive Paris-based club of 30 wealthy countries, launched a campaign in April 1998 to reverse this rule and oblige smaller finance centers to help its members with tax enforcement. The OECD's 1998 report, Harmful Tax Competition: An Emerging Global Issue, proposed an ambitious jump in global tax enforcement capability through (1) government access (around the world) to beneficial ownership and financial data, and (2) cross-border exchange of such data on request by tax authorities, everywhere.
The OECD demanded formal commitments from the so-called “tax havens” (small international financial centers) to actively assist with its program for global “transparency” (collection and exchange, on request, of financial data). These demands were backed by threats to shut non-cooperating international financial centers out of the world's banking and securities markets. But the OECD launched its program for data tracking without an effective means of ensuring participation in its program from key countries within its own membership.
Both Switzerland and Luxembourg, OECD members that have substantial “offshore” financial services businesses, dissented from the 1998 report and remain reluctant to support the OECD information exchange program. Portugal and Belgium, also OECD members, dissented from the project in 2001 and retain reservations.7
By 2002, most of the small international financial centers had agreed, under duress, to support the OECD project for tax information exchange.8 Their progress was initially slow, because they found that clients were migrating elsewhere in anticipation of their regulatory changes. In particular, many clients were moving to take advantage of the more relaxed data collection and exchange standards available in Switzerland and the United States, the principal cross-border finance centers within the OECD.
Following an early Isle of Man commitment in December 2000, the smaller offshore centers wised up and conditioned their commitments on a “level playing field,” that is to say, an assurance that OECD countries and others left out of the project (such as Dubai, Hong Kong and Singapore) would adopt similar standards. The traditional offshore centers were apparently willing to cooperate, but only if all financial centers would — as Sir William Allen, finance minister of the Bahamas put it — “join hands and jump into the cold pool together.”9
The OECD was not successful in encouraging adoption of key points in its program by member states with substantial “offshore” financial services businesses. This became embarrassingly obvious in 2004 when the European Union made concessions in its parallel program for tax information collection and exchange (the “Savings Tax Directive.”)10 Unlike the careful management of the OECD initiative (which held key debates behind closed doors), the EU argument over the competitive and financial costs of compliance became a highly public confrontation between the European Union and Switzerland.11
Although all 15 members of the European Union at the time were also then OECD members, the European Union exempted four OECD members — Austria, Belgium, Luxembourg and Switzerland — from information exchange obligations until 2010. (For reasons rooted in the need to reach political compromise, commitments to impose withholding tax at increasing rates were accepted instead.) The United States refused to discuss providing information on an automatic basis, yet was declared (disingenuously) to have information exchange practices equivalent to those demanded by the European Union.
The exemptions from tax information exchange granted in the EU Savings Tax Directive stunned the smaller financial centers. For several years, they had been steadily losing business to OECD countries that lagged behind in this effort. The OECD had kept the project alive only by constant promises of decisive action on the derelictions within its own membership.12
The exemptions granted by (and for) OECD countries in the E.U initiative ripped the lid off defaults by OECD countries. The OECD was demanding onerous information collection and exchange from others, but key OECD states were refusing to bear the costs of implementation at home. It was no longer credible for the OECD to claim its members were on the verge of catching up to others' information-exchange programs.13 Protests to the exemptions granted under the Savings Tax Directive crippled the OECD project.
More serious problems for the OECD have arisen because of the ambivalent position of the United States. The U.S. government provides funding14 and officer staffing for the OECD; President Bill Clinton's administration enthusiastically supported the OECD's tax enforcement program when the project was launched in 1998.15 But most of the new data-tracking commitments in the program fell outside U.S. federal authority and within the jurisdiction of the states. Worse, nearly every state in the United States now permits tax-free companies with anonymous ownership, flouting OECD demands to identify and collect information from persons establishing companies.
Seiichi Kondo, OECD deputy secretary general, authored a widely circulated International Herald Tribune article in May 2002, “Little Cheats Will Have to Repent,” noting that the lack of transparency for ownership of companies established in “uncooperative tax havens” threatened the “integrity of the international financial system.” Shortly after, The Economist magazine quoted then-Chair of the U.S. Senate Banking Committee Carl Levin (D-Mich.) acknowledging that, although the United States criticized other countries for allowing the creation of companies with secret ownership, “we are basically doing the same thing.”16
By mid-2004, the smaller financial centers were wondering whether it could be right that the “little cheats” had to repent, while the “big cheats” were pitching for the business dislodged by the unevenly implemented OECD program. The OECD was under serious pressure to show swift and decisive action to remedy defaults among its members.
It was time to prepare a report.
Now, two years later — and a full eight years after the Harmful Tax Practices initiative was first launched — the report is finally here.
The long delay in providing empirical support for the transparency project may seem surprising, given the OECD's universally acknowledged expertise in conducting complex comparisons of data across countries. But 80 percent of global “offshore” (cross-border) financial services are conducted within the OECD's sovereign constituency,17 and it is plainly difficult to be both player and objective referee at the same time.18
At 248 pages, the report captures the situation as of Dec. 31, 2005. It contains a vast amount of data, generally supplied directly by the countries participating in the exercise. That data was not audited by the OECD secretariat, but participating countries had the opportunity to comment on the information others provided, helping boost the level of accuracy. However, the temptation for countries to indulge in editorial nuances in their contribution to the tables was more difficult to manage, and the informed reader will see many.
The report's narrative, some 35 pages, argues the case for reasonable “transparency” and advocates that information be required only when requested, and be limited to what is requested. (The EU preference for automatic and comprehensive information exchange is far more intrusive and costly.) The report also tells how well countries are complying with these standards.
Exchange of information generally is the result of double tax conventions (DTCs) or tax information exchange agreements (TIEAs). Less common, tax information may be provided under mutual legal assistance treaties or through exchange under anti-money laundering laws that include tax evasion as a predicate offense.
Apparently the world already has a complicated but rather patchy network of tax information exchange. The report notes that among the 82 nations surveyed, there are about 1,800 bilateral DTCs and 46 bilateral TIEAs. These agreements differ on some key issues, such as:
whether there is a requirement for a domestic tax interest in the requested jurisdiction;
the presence of safeguards such as notice to the person about whom information is being exchanged (unusual, apparently);
assurances from the requesting jurisdiction that the information will be treated as confidential; and
dual criminality requirements, that is to say, insistence by the jurisdiction receiving the request that the information concerns activity that would be criminal under its own laws.
In Singapore, the government's ability to access local bank information is restricted to cases in which it has a domestic interest in the information. Singapore has made a big push in the private banking area based on its robust domestic protections for bank information and this has attracted the Swiss banks.
Switzerland is singled out for special attention on dual criminality requirements, as it generally responds only to requests for information on tax matters that constitute “tax fraud.” Yet, to the consternation of Switzerland's OECD colleagues, “The mere non-declaration of income is not considered to be tax fraud [under Swiss law].”19 However, a recent protocol to the Swiss/U.S. double tax convention now extends the exchange of information (to the United States) to circumstances where there is “tax fraud or the like.”
Bank secrecy has long been a bugbear for the OECD. As one would expect in a project mounted by tax authorities, it's treated as self-evident that all aspects of an individual's financial affairs are the legitimate subject of government scrutiny. Accordingly, while banking confidentiality (between a bank and its customer) is seen as appropriate, laws preventing access by tax authorities send the OECD into orbit. The OECD is making progress in this area, as only five of the 82 countries surveyed now lack access to bank records for purpose of eliciting data for tax exchange purposes.20
The OECD program to create enhanced tools for tax enforcement has been most successful among non-members in effecting a change of mindset on the need for a government to maintain access to ownership, identity and accounting information. At an early stage, the OECD encouraged non-members to establish government registers to hold such data on companies and other structures established in a country. But the absence of such facilities in many of its larger countries made it difficult to insist on this approach.
The OECD now appears content with government access to ownership data maintained by the local agent (that is to say, a corporate service provider). In most non-member states, the OECD has succeeded in extending this data to beneficial ownership, not merely the registered owner of companies.
Tax-free companies with anonymous ownership were commonplace in the traditional offshore centers in 1998. But such companies have been hunted to near extinction throughout the OECD project for tax information exchange. Eliminating such structures also has been a high priority for the United States, whose law enforcement authorities have fulminated on the subject of criminal activities relating to U.S. tax evasion, money laundering and securities frauds, terminating in anonymous structures established in the traditional offshore centers.
Given the importance that the OECD has attached to the goal of eliminating bearer (unnamed, unlisted) shares, it's surprising that a majority of the jurisdictions surveyed permit bearer shares (48 countries) and bearer debt (52 countries). The OECD notes that the majority of countries with bearer facilities have mechanisms to require identification of owners; for example requirements to deposit shares with a custodian and compliance with anti-money laundering requirements.21 In practice, these mechanisms will have varying and unpredictable success in achieving the goal of identifying holders of such securities.
The United States is the largest financial services market in the world and is often cited as a model for sophisticated regulation. But eight years after the launch of the OECD initiative, while anonymously owned companies have become rare in smaller financial centers, they continue to flourish in U.S. states. U.S. single member limited liability companies (LLCs) are widely used now as a substitute for the anonymous companies that are now nearly extinct in their traditional homes. The brochure of a Delaware-based service provider explains the tax status of such companies: “Single member Delaware LLCs can also provide tax avoidance benefits to international investors who are neither citizens nor residents of the U.S. because they combine anonymity with the tax-free status of non-U.S. source income. Since the single member Delaware LLC is classified by the IRS as a ‘disregarded entity,’ it is not required to file a U.S. federal tax return. At the individual tax level, non-resident aliens of the U.S. do not pay federal income tax on non-U.S. source income.”22
A report of the U.S. government auditor (the General Accounting Office) on anonymously owned U.S. companies, Corporate Formation: Minimal Ownership Information is Collected and Available published in April23 opens with the admission that “most [U.S.] states do not require ownership information at the time a company is formed.”24 That 72-page report reviews information requirements for establishment in U.S. states, and notes the use of anonymous, tax-free U.S. companies in international criminal activity. Remarkably, the policy section of that report makes no reference to the eight-year OECD campaign to stamp out anonymous companies.
Another major report released in January by an interagency U.S. government team, led by the U.S. Treasury, describes the use of such tax-free U.S. companies: “A Delaware-registered company may be owned by a national of any jurisdiction, regardless of his or her place of residence. The company can be operated and managed worldwide, and is not required to report any assets. Eastern European and Russian law enforcement agencies have expressed concern that regional criminal organizations were abusing Delaware shell companies for money laundering. And German prosecutors have reportedly complained that the secrecy inherent in Delaware's regime for legal entities has hindered investigations into suspicious financial activity. Yet Delaware is not the most permissive jurisdiction in the United States with regard to company formation. Both Nevada and Wyoming permit companies to have bearer shares and nominee shareholders, which Delaware does not.”25
U.S. consternation over anonymous companies elsewhere evidently has not prevented U.S. states and their service providers from providing similar facilities for foreigners at home. The brochure of one U.S. service provider selling U.S. corporate shells confirms the migration of “offshore” (tax-free) companies to the United States: “Due in part to increased regulation in traditional and non-traditional offshore jurisdictions, many international fiduciaries and attorneys are replacing their clients' existing offshore companies with Delaware LLCs. The major benefit is that Delaware law does not require that information on the beneficial owners be kept or disclosed so the anonymity of the client can be preserved. Also, many financial professionals prefer the reputable stature of the U.S. jurisdiction of Delaware as compared to some of the offshore jurisdictions.”26 The U.S. response in the OECD report on the absence of access to corporate ownership27 information refers only to the availability of corporate ownership data in U.S. federal tax returns. The OECD commentary on this gap merely confirms that “[i]n the United States, federal tax law provides that [ownership] records must be kept so long as they may be relevant to the administration of that law.”28 These comments overlook the obvious point that most foreigners incorporating U.S. companies for international use will not need to file a U.S. tax return, so as a matter of practice the requirements of U.S. federal tax law do not generate any relevant reporting.
The communiqué following the OECD Global Forum meeting in Melbourne notes in several places the need for countries to enlist the participation of their “political subdivisions” in the harmful tax practices work. This represents progress on addressing the disruption posed by the reluctance of U.S. states to participate in the global program for greater transparency. If the U.S. federal government is unable to commit its states because of the constitutional division of powers, the states should be asked to commit directly, just as the British Overseas Territories and Crown Dependences have done.29
The OECD report's failure to note widespread U.S. derelictions in permitting anonymously owned companies is a significant shortcoming. Obviously, the OECD project itself will have failed if illicit companies with secret ownership merely migrate out of the tax havens and into the United States.
The OECD's original goal was to require all companies to prepare financial statements and file them with the government in the companies' jurisdictions of incorporation. Again, the OECD was persuaded to permit financial information to be kept by service providers in non-member states, and thereby accessible to the home country government upon request. Apart from occasional OECD grumbles over whether local agents were properly supervised in all non-member jurisdictions, the process is seen as striking an acceptable balance between client confidentiality and the obligation to assist foreign states when information is required.
The OECD report notes that company, trust, partnership and foundation laws generally require the keeping of accounts, or at least the retention of financial data. In high-tax countries, these statements either must be filed or kept available for government authorities whenever there is a domestic tax interest in the structure. Accordingly, when there is a domestic tax interest, financial data is normally available in the larger countries.
Gaps occur in the larger countries when the structure is not subject to tax in the jurisdiction of establishment. Thus, the single-member U.S. LLC, commonly used as a substitute for a tax-free offshore company, has no U.S. tax exposure or corresponding obligation to report or make financial statements available to U.S. tax authorities. U.S. law enforcement officials acknowledge that, on investigation, locating financial data from these (anonymously owned) U.S. companies often leads to a dead end.30
The OECD report notes only that U.S. federal tax law provides that accounting records must be kept so long as they are relevant to the administration of that law.31 Perhaps this is a complete answer for U.S. purposes, though its relevance is questionable when the United States has no domestic interest in, or capacity to collect, the data from U.S. companies with no U.S. operations.
The other key point in the accounting data area is whether companies and other structures should be required merely to collect information or be obliged to prepare financial statements as well. It may seem evident that financial statements should be prepared for a company to establish good corporate governance, for the directors could hardly discharge their duties without this information.
But many companies will, for example, hold a single (non-income producing) piece of real estate, or, say, a portfolio administered by a fund manager that already produces all the financial data required to administer the company. Should such companies be required to incur an extra layer of cost to produce financial statements that are not required for their operations, just so they are available on the off chance that they're requested by a foreign government?
The OECD report adopts a pragmatic solution, a “shoebox” approach: Companies and other structures are required to maintain reliable accounting records adequate to explain the transactions of the entity, enable the financial position of the entity to be determined at any time, and facilitate the preparation of accounts if required.32 This appears to be a reasonable compromise between the needs of the state and the interests of business in avoiding unnecessary cost.
While the OECD seeks the assistance of non-member financial centers, OECD member states continue to marginalize the role for such offshore centers in the world financial system by restricting the ability of OECD residents to consume financial services provided from such jurisdictions. These restrictions are imposed through blacklists,33 controlled foreign company rules, denial of deductions, higher withholding taxes, denial of domestic tax concessions and a myriad of similar rules. Higher reporting requirements for transactions taking place in traditional offshore centers also chill client appetite for tax competition from such centers, even in the absence of formal technical barriers.
These anti-avoidance rules are understandably directed at abusive behavior but end in overkill. They damage the legitimate aspirations of small economies with limited resources to provide transparent international financial services. It's also unreasonable for OECD countries to take the position that the tax conventions and similar treaties that facilitate cross-border investment should be available only to the larger countries.34 Non-member states need to rethink these outdated exclusionary practices and be prepared to compete for international financial services on a transparent and level playing field.35 The OECD makes much of its efforts in the Global Forum to include the non-member financial centers as “participating partners” in its plans for broader information exchange. But this participation is too limited to be meaningful; the opportunity furnished to small countries to implement the agenda of their powerful competitors is not much evidence of a partnership.
In any event, the OECD is not responsible for any lack of initiative on the part of the non-member states to articulate collectively their needs for a more balanced and inclusive agenda. Critical though it may be, the demand for a level playing field is a mere brake on the process. The substantive policy direction is far more important than the actual pace of progress.
The post-9/11 world has come to accept government scrutiny as the price of protecting our freedom. Inevitably, our financial affairs, our DNA, and our movements and communications will find their way into globally converged and digitally searchable government databases. It is, apparently, not a point that troubles those in the tax collection community who promote the OECD Harmful Tax Practices project. The vestiges of privacy that remain to us are clearly seen as black holes to be eradicated in the interests of “transparency,” a universal good (when applied to the affairs of others).
The OECD project for transparency is moving towards a defensibly proportionate invasion of the limited privacy left to us. The OECD's longstanding proposal for “on request” provision of information is far more balanced than the automatic, comprehensive surveillance demanded by the European Union. The requirement to maintain financial records adequate to construct financial statements, rather than the financial statements themselves, is also sensitive to the varying circumstances of the structures sought to be covered by the OECD's program for data collection and exchange.
Two issues continue to rankle and remain unresolved. The first is the exception invoked by the United States in failing to adhere to the basic tenets of a program significantly funded and staffed by the U.S. government, but intended, apparently, only for the little people in the global economy. The United States' thirst for bank deposits comprised of foreign flight capital evading home country taxation is scandalous, particularly in view of the aggressive posture adopted by the United States when its own tax revenue is at stake. Similar hypocrisy underpins the U.S. refusal to deal with anonymously owned U.S. companies while demanding that others jettison such structures. The OECD's failure to enlist “do as I do” support from their principal constituent undermines the credibility required to cajole cooperation from others.
The second serious problem is the missed opportunity for the OECD's Global Forum to identify the meaningful quid pro quo promised for inducing cooperation from non-member states.
Durable and stable agreements invariably require an exchange of value, and the sovereign context is no exception. If the OECD project is going to succeed, all nations are going to have to play fair, Switzerland and United States included.
For all its faults, though, the OECD process does provide a forum for countries large and small to discuss the needs of a globalizing world. Notwithstanding that there are many abused smaller jurisdictions ready to dance on the grave of the OECD's tax information exchange project, it is in no one's interest for the dialogue to fail. Frustrated OECD states would seek to fill the vacuum, and the EU approach would fit the bill.
Two points are essential for further progress. First, large countries should not ask smaller ones to bear the cost of implementing standards ignored at home. Before the OECD proceeds further, it should ensure that it has the means to require its own members to adhere to the rules proposed for others. Second, as business and regulation converges in the large and small financial center, the current discrimination against the smaller competitors looks increasingly inequitable. OECD countries should act on the Report's commitment to remove barriers to fair trade in financial services for all jurisdictions implementing the new standards.
A version of this article appeared in BNA International, Tax Planning International Review, June 2006, www.strikeman.com/pdf/OECD.
- The name for the new report from the Organisation for Economic Co-operation and Development (OECD) coincides with one used in a similar but more limited earlier report. Towards a Level Playing Field, published in September 2002, surveyed information access and exchange practices in 13 OECD and non-OECD countries. That report showed that four years after the 1998 launch of OECD's program for tax information exchange, most of the principal OECD states competing for offshore services significantly lagged behind the progress made in the smaller centers. The 2002 Towards a Level Playing Field report was sponsored by the Society of Trust and Estate Practitioners and a grouping of smaller financial centers (the “International Tax and Investment Organisation”). It was researched by 14 leading professional firms and prepared by Stikeman Elliott. That report is available at www.stikeman.com/en/practices/our_practices/paf.cfm?PA_ID=65.
- The report is formally the output of the Global Forum, a grouping of OECD countries and non-member financial centers assembled by the OECD to conduct its tax information exchange program.
- People often overlook the fact that the so-called “tax havens” often have high (usually indirect) taxes. Government revenue in the Isle of Man, for example, is 38 percent of its GDP.
- “Financial Services Sector Set For Huge Growth,” Financial Times, April 20, 2005.
- See, for example, the “peer review” of U.S. anti-money laundering legislation released mid-July 2006 at www.fatf-gafi.org/document/23. The Financial Action Task Force Report noted a significant shortfall in U.S. state compliance with international transparency standards relating to company formation, as follows: “[U.S. c]ompany formation procedures and reporting requirements are such that the information on beneficial ownership of legal persons may not, in most instances, be adequate, accurate or available on a timely basis.” See also the discussion of the recent U.S. General Accounting Office and Treasury reports on the same subject.
- Government of India, Ministry of Finance v. Taylor,  A.C. 491;  1 All E.R. 292 is the classic modern statement of this rule, but the principle is rooted in cases two hundred years earlier.
- The OECD's Project on Harmful Tax Practices: The 2001 Progress Report, note 1, states: “Belgium and Portugal abstain from this Report. Luxembourg recalls its abstention to the 1998 Report, Harmful Tax Competition: An Emerging Global Issue, which also applies to the present report and regrets that the 2001 progress report is further away from the goal of combating harmful tax competition with respect to the location of economic activities. In addition, Switzerland notes that its 1998 abstention applies to any follow up work undertaken since 1998.” Portugal and Belgium expressed further reservations in the 2004 progress report, and Switzerland and Luxembourg continued their dissenting position. Belgium and Portugal's abstention relates to concerns regarding the balance of the project because of the continued application of the ring fencing criterion to OECD member countries.
- Crucially, at this stage the OECD had accepted that the offshore centers were free to operate income tax-free fiscal regimes (see Towards Global Tax Co-operation, June 26, 2000).
- Sir William Allen often said this publicly.
- The directive became operational in July 2005. It requires automatic reporting of cross-border interest payments on savings income paid from an EU or other participating jurisdiction to EU resident individuals. Switzerland, Austria, Belgium, Luxembourg and most U.K. Overseas Territories and Crown Dependencies will levy withholding tax, in lieu of exchanging information, until 2010. There is no obligation on these jurisdictions to adopt withholding tax in 2010 unless Switzerland agrees to do so. Securing Switzerland's agreement to information exchange in 2010 is not a forgone conclusion; indeed, it looks doubtful.
- See “ECOFIN Bolkestein Urges Ministers to ‘Stick to their guns’ on Swiss Tax Deal,” AFX News Limited, 9 March 2004, and “Swiss failure to Agree Savings Tax Angers EU.” Financial Times, March 9, 2004.
- In “Towards World Tax Cooperation,” OECD Observer (June 27, 2000) Jeffrey Owens, OECD head of Fiscal Affairs, reviewed the OECD's demands for transparency in the Harmful Tax Competition initiative and stated: “[L]et me emphasise that the same standards will apply to all [OECD] member countries and non-member countries.”
- See “Little Cheats Will Have to Repent” in which the deputy secretary general of the OECD claimed in May 2002 that OECD countries had pledged to eliminate their harmful tax practices by April 2003. International Herald Tribune, May 10, 2002.
- The United States bears 23 percent of the OECD budget, and has influence commensurate with this substantial funding.
- The OECD project was originally entitled “Harmful Tax Competition” (emphasis added). The disapproval of low tax rates was dropped and the project name was changed in 2001 to “Harmful Tax Practices” (emphasis added) in deference to reservations expressed by the incoming (George W. Bush) U.S. federal administration, which expressed unease about a program to curb tax competition. The Bush administration's enthusiasm for tax competition later diminished when U.S. headquarter companies started moving to Bermuda to cut their U.S. tax bill.
- “Shell Games,” The Economist (Oct. 26, 2002) at p. 99. However, the U.S. Senate Aug. 1 report, Tax Haven Abuses: The Enablers, The Tools and Secrecy, which Senator Carl Levin oversaw as senior minority leader, barely acknowledged U.S. states' culpability in the offshore tax haven game.
- Rajiv Biswas, “International Trade in Offshore Business Services: Can Developing Countries Compete?” International Tax Competition, Globalisation and Fiscal Sovereignty, (Commonwealth Secretariat, 2002) at p. 112.
- OECD countries competing in the market for “offshore” financial services (mainly the United States, Switzerland and Luxembourg) were better placed to seek exemption from the emerging rules. The 2002 Towards A Level Playing Field Report (see note 1) showed that they fell further behind as the OECD project gathered momentum. By March 2004, even the International Monetary Fund (IMF) was acknowledging that the larger countries were falling behind, noting: “Compliance levels for offshore financial centres are, on average, more favorable than those for other jurisdictions assessed by the Fund in its financial sector work.” See IMF, “Offshore Financial Centres, The Assessment Project — An Update,” March 12, 2004, at p. 7.
- Swiss response in Table A5 of the OECD report, Application of the Principle of Dual Criminality.
- OECD report, at p. 21, para. 55. The countries are Guatemala, Nauru and Panama, with “insufficient information” to assess Brunei and Dominica. Following a recent change, Panama now permits access for domestic civil tax purposes.
- OECD report, at p. 25.
- Fidinam & Partners, “International Tax Planning Using U.S. Entities,” May 2003 at p. 23.
- Available at www.gao.gov. For analysis of this report, see Bruce Zagaris, “GAO Report on Company Formations Focuses on U.S. Shell Companies, Evidence Gathering Problems,” International Enforcement Law Reporter, vol. 22, issue 7, July 2006.
- See the introduction to the GAO Report.
- “U.S. Money Laundering Threat Assessment,” prepared by the Interagency Working Group led by the Department of the U.S. Treasury, dated December 2005, and released January 2006, (available at www.cf.ac.uk/socsi/whoswho/levi-laundering.pdf). Once again, this report made no reference to the OECD project to curb the availability of anonymous companies.
- Fidinam & Partners, supra, note 22.
- OECD report, Table D-1.
- OECD report, at p. 28.
- The U.K. Overseas Territories and Crown Dependencies were asked to participate and commit directly, despite the U.K. having the power to conduct their international relations.
- The GAO report notes that most law enforcement officials interviewed for their report advised that they had closed cases “that reached dead ends because of the lack of U.S. company ownership information,” at p. 36.
- OECD report, para. 144, at p. 38.
- OECD report at p. 59.
- See the Society of Trust and Estate Practitioners (STEP) report by Jason Sharman and Gregory Rawlings, “Deconstructing National Tax Blacklists — Removing Obstacles to Cross-Border Trade, Financial Services, Sept. 19, 2005.
- The Isle of Man agreed to exchange data with the Netherlands in October 2005 on the basis of a plan by the parties to commence negotiations on a full double taxation agreement between the jurisdictions. This unique precedent has attracted attention of policy makers on all sides of the dialogue. For a review of the agreement, see Malcolm Couch, “The Isle of Man Leads the Way with New Approaches to International Tax Agreements,” Offshore Investment Magazine, issue 162, December 2005/January 2006. See also the interesting series of articles by Marshall Langer on tax agreements between large and small countries in the March to May 2006 editions of Offshore Investment Magazine.
- See the summary of Jersey's policy position in Removing Commercial Obstacles to Market Access, by Colin Powell C.B.E, in the published papers from the September 2005 STEP Symposium, Beyond A Level Playing Field, at p. 103.