The hostility to tax havens is not new. Many of these jurisdictions have already taken steps to open up their affairs and they are likely to continue to prosper.
Offshore tax jurisdictions have featured strongly in the crescendo of media coverage leading up to the G20 summit in
As ever, the noise and fury of the debate has drowned out other voices. The facts are that firstly, there are perfectly legitimate reasons for individuals and companies to bank and to do business offshore.
Secondly, the real issue should not be about tax havens per se, but rather with the degree to which these jurisdictions co-operate with the authorities to eliminate tax evasion. And in this, Tax Information Exchange Agreements have already shown the way forward. They provide a firm commitment from tax havens of their willingness to work with the authorities and to comply with international standards for data sharing. In short, the critics and policy makers are already pushing at a partly open door.
Pressure on tax havens is not new. In 1996, the Organisation for Economic Cooperation and Development began the process of identifying various jurisdictions engaged in “harmful tax practices”. A “tax haven” was defined as a country where tax rates are low or indeed zero and which gives opportunities to taxpayers to avoid or evade tax in their home countries and from which other countries find it extremely difficult to obtain information for tax purposes.
Ascertaining the scale of the problem arising from these perceived abuses is extremely difficult. Estimates of the value of assets held offshore in tax havens range widely from $1.7 trillion to $11.5 trillion and the
In 2000, the OECD produced a black-list of thirty eight tax havens which embarrassingly included seven UK Overseas territories such as Bermuda and Gibraltar and three Crown Dependencies – Jersey,
Over the course of the two years following the publication of the report, the OECD procured commitments to implement its standards of transparency and exchange of information from most of the countries on the list. Only
On a practical level, the
It has taken some time for those jurisdictions which were removed from the blacklist to honour the commitments they gave. Most strikingly, many have entered into, or are in the process of so doing, bilateral TIEAs with a number of OECD countries. The
The competent authorities of the Territories shall provide assistance through exchange of information that is relevant to the administration or enforcement of the domestic laws of the Territories concerning taxes covered by this Arrangement. Such information shall include information that is relevant to the determination, assessment and collection of such taxes, the recovery and enforcement of tax claims, or the investigation or prosecution of tax matters.
Information will only be exchanged where there is evidence of serious tax fraud and significant amounts of tax are at stake. Speculative “fishing” enquiries will not be entertained but revenue officials will, in appropriate circumstances, be able to go to the territories concerned to interview individuals with their prior agreement.
In order to make possible the maximum degree of transparency there is a wide spectrum of information which may be divulged. Tax authorities, provided they can substantiate good grounds for their requests, will be able to obtain information held by banks, other financial institutions, and any person, including nominees and trustees, acting in an agency or fiduciary capacity; and also regarding the ownership of companies (other than those which are publicly listed), partnerships, collective investment schemes, trusts, foundations, "Anstalten", "Stiftungen" and other persons including:
· ownership information on all such persons in an ownership chain;
· in the case of collective investment schemes, information on shares, units and other interests;
· in the case of trusts, information on settlors, trustees and beneficiaries;
· in the case of foundations, information on founders, members of the foundation council and beneficiaries and equivalent information in the case of entities that are neither trusts nor foundations.
Just to add to the relentless pressure on tax havens, the US Congress is likely to enact, within the next few months, the Stop Tax Haven Abuse Act originally sponsored by the newly elected Mr Obama. This legislation will allow US authorities to impose financial sanctions on territories which are perceived to be assisting abusive tax practices.
In summary, it is worth emphasising that it is not illegal to conduct business in or through offshore jurisdictions. The issue lies in the government’s ability to clamp down on tax evasion in these jurisdictions without exacerbating an already difficult world economic climate. TIEAs should be capable of providing transparency in tax havens, albeit rather slowly but effectively.
Considering this, Gordon Brown should focus on pushing TIEAs forward and speeding up the system by which they are implemented and ratified.