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FINANCE: OECD Tax Havens Deal Falls Short, Critics Say

MIAMI BEACH, Florida, U.S., May 8 2009 (IPS) - Jeffrey Owens, the tax “point person” of the Organisation for Economic Cooperation and Development (OECD), was stung by activist critics of the OECD standards under which countries will be put on a tax haven blacklist and targeted for sanctions.

The blacklist was announced last month at the London meeting of the G20, which said in a communiqué that it would “take action against non-cooperative jurisdictions, including tax havens…to deploy sanctions to protect our public finances and financial systems.”

Owens made the comment to IPS when he stopped to chat on his way to the podium to deliver the keynote address at the Financial Due Diligence Conference organised last week in Miami Beach by the industry newsletter “Offshore Alert.”

The OECD is composed of 30 of the world’s major economic powers, mostly from Europe. The G20 includes major western countries as well as Brazil, Russia, India, and China.

Key civil society criticisms are that the OECD standards require bilateral agreements for information on request, not automatic multilateral tax information exchange; that they call for only 12 such agreements to be signed by each tax haven; and that getting off the blacklist entails only promises, which have not been kept by tax havens in the past.

Oxfam International, the development organisation, said, “There is no reference to an automatic multilateral tax information exchange system. Anything less is unlikely to benefit poor countries, since they lack the information to prove their case before gaining access to tax information, or the administrative capacity to enter into negotiations on a case by case basis.”

What tax havens call “fishing expeditions” are not allowed, though often the information that could make a case resides only in the offshore centres – estimated at 50-70 depending on who is defining them.

Oxfam said, “Even for rich countries, it is incredibly difficult to make an information request under these agreements, and the tax haven can quite easily refuse the request. Jersey, for example, a well known tax haven, has had such an agreement with the USA since 2001, yet has only delivered just five pieces of data in all that time.”

Owens, director of the OECD’s Centre for Tax Policy and Administration, told the conference audience that automatic information exchange would not work, because, “For developing countries, it would be very hard for them to manage an enormous flow of information.”

IPS pressed Owens to explain why the EU had insisted on automatic information sharing for its own European Union Tax Savings Directive effected in 2005, but those countries, who dominate the OECD, appeared to think it was not good for the rest of the world. (The OECD did fix a flaw in the EU standard by requiring information sharing about accounts of companies as well as individuals).

He replied, “There is nothing stopping developing countries in its treaties from using automatic information sharing, but you have to be sure you can use the information.” He said he had visited the office of an unnamed tax commissioner and noticed boxes marked “IRS” [the U.S. Internal Revenue Service] stacked against the wall. He explained that the commissioner said “he got all this information and didn’t know what to do with it.”

Owens said, “Targeted information is the key thing.”

“If I am a UK resident and think about evading taxes, does the country I want to use have an agreement for exchange of information on request? Don’t underestimate deterrent effect,” he added. “You’re taking a bigger risk when you put your money into a country that signed up to the standard.”

However, that deterrent effect hasn’t worked very well to date. The U.S. tax information exchange agreement with the Cayman Islands, established in 2002, has not perceptively reduced U.S. nationals’ extensive use of that tax haven, which is the world’s fifth largest financial centre by deposits.

Beyond that, how can 12 bilateral agreements be enough in a world with more than 190 countries? Action Aid UK, a development organisation, said, “Substantial implementation of the OECD standards is taken to mean signing 12 bilateral agreements. This sets too low a number to likely include developing countries.”

Owens countered that, “Twelve agreements between tax havens aren’t going to count. If a country gets 12 and then closes the door, no. We expect countries to continue to negotiate after they reach the 12.”

Will the OECD really put countries that finesse the rules on the blacklist? Oxfam wasn’t encouraged on the day of the G20 meeting when the OECD’s announced blacklist of “non-cooperative” tax havens included only Costa Rica, Malaysia, Philippines and Uruguay – none among the world’s major offshore centres. (Uruguay was almost immediately removed from the list after it formally endorsed the OECD standards).

Perhaps the four had been too naïve or inefficient to pledge to go with the programme, but the blacklist shrunk to zero when they hurriedly signed on. Were there really then no tax havens anywhere in the world still committed to impregnable bank and corporate secrecy?

Action Aid UK noted that “a number of major tax havens managed to jump through the hoops in time to escape even the grey list.” Oxfam agreed that, “Tax havens like Jersey and the Isle of Man appear on the white list, rather than the ‘grey list’ of jurisdictions that have committed to the internationally agreed tax standard but have not yet substantially implemented it. These lists reflect promises (rather than actions) from uncooperative jurisdictions to sign up to OECD standards.”

Maintaining that concern about tax havens’ impact on developing countries was indeed a factor in the decision by major financial powers to deal with them, Owens pointed out that discussions at the U.N. conference in Doha in November 2008 had focused on how secrecy jurisdictions deprive developing countries of the financial resources needed for development.

He said, “A link is being made between development, the Monterey commitments, and the impact on developing countries of tax havens. It changed the dynamics of the debate, broadening it beyond OECD countries.”

A key issue now is what happens to countries that don’t keep their promises. Owens said that sanctions – called “defensive measures” – would be extensive. Countries could deny the tax deductibility of certain expenses. They could reconsider existing tax treaties with those countries. They could demand that aid recipients commit to the standards. International institutions such as the European Bank for Reconstruction and Development Bank and the Asian Development Bank could reflect the standards in the investment policies. However, sanctions are up to each country and institution to apply.

Action Aid UK noted that there was no commitment to implement sanctions, but looked favourably at the fact that, “Sanctions must be ‘agreed’, implying a multilateral process of sanctions rather than a bilateral one that depends on a country’s economic might.”

The G8 in July will get the OECD’s report on how the process is going, and G20 finance ministers will consider the advances against offshore secrecy at their meeting in November.

*Lucy Komisar is an investigative journalist who writes about the offshore bank and corporate secrecy system. Her articles are posted at

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