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Towards a Level Playing Field,
second edition.


Report undertaken by Stikeman Elliott on behalf of the ITIO and STEP.

 


18 April 2002

Is OECD preparing sanctions against Switzerland and Luxembourg or not?

Speaking today, Lynette Eastmond, Director of the International Tax and Investment Organisation, which represents small and developing economies, made the following statement about the Organisation for Economic Cooperation and Development's publication of a list of "uncooperative tax havens".

'The OECD is concerned that a group of small countries has not signed up to its principles of transparency and exchange of information. Its officials have even now started the work of preparing a "framework of defensive measures" (i.e. sanctions) to impose on these countries after April 2003.

'The OECD says it understand small countries' concerns about establishing a level playing field. It agrees with the ITIO that "it is in no one's interest that harmful activities move to jurisdictions that do not meet acceptable standards of transparency and effective exchange of information".

'Yet as things stand, on one hand sits group of small countries, most of which have committed to change their so-called "harmful tax practices" and a few of which haven't. For these latter countries, the OECD has today made clear that its officials are developing a "framework of defensive measures" to impose after April 2003.

'On the other hand sit the OECD countries, most of which have committed to change their own "harmful tax practices" by April 2003 but two of which, Switzerland and Luxembourg - the leading onshore competitors with the targeted small countris - haven't. For these latter countries, the OECD has given no indication that "coordinated defensive measures", which must be tailored to each country, are being prepared.

'While the ITIO does not support the imposition of sanctions within the context of tax matters, the current position appears uncertain and strongly suggests the lack of a level playing field.'


EXPLANATORY NOTES


1. Back in 1998, the OECD published a limited list of "tax havens" and demanded these make changes to their systems. Major finance centres like Switzerland and Luxembourg (OECD members) and Hong Kong (part of powerful China) did not figure on the list.

2. The OECD also identified "harmful tax practices" in its own member states. Most of its members agreed to reform these by April 2003. Switzerland and Luxembourg abstained from the report and from the whole process.

3. Most of those identified by the OECD as tax havens have now made a commitment to the OECD's project. Seven countries (Andorra, Liechtenstein, Liberia, Monaco, The Marshall Islands, Nauru and Vanuatu) have not done so. Some have complained about the OECD's neo-colonial approach and the leeway granted to Switzerland and Luxembourg.

4. The OECD today stated: "OECD member countries will use the list [of seven uncommitted countries] as a basis for the framework of co-ordinated defensive measures now being developed" for imposition after April 2003. Such measures will inevitably be very specific and country-focused.

5. April 2003 is also the date by which OECD countries are required to reform their "harmful tax practices". Presumably, those who do not do so will have sanctions imposed on them. Yet the OECD has said nothing about "the framework of co-ordinated defensive measures now being developed" also applying to Switzerland and Luxembourg.

6. Offshore centres believe that a level playing field should apply to OECD and non-OECD countries alike. They are deeply concerned that, if OECD countries are not obliged to adhere to the same standards, business will just migrate to OECD members.

7. The International Tax and Investment Organisation (ITIO) is a grouping of small and developing economies (SDEs) set up in March 2001 to help SDEs respond to global tax and investment challenges. It explicitly considers the development implications of these challenges. (See www.itio.org.)

8. The ITIO currently comprises Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Cook Islands, Malaysia, St Kitts & Nevis, St Lucia, Turks & Caicos and Vanuatu. The Commonwealth Secretariat, Pacific Islands Forum Secretariat, CARICOM Secretariat, Caribbean Development Bank and Eastern Caribbean Central Bank have observer status.


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ITIO THANKS COMMONWEALTH SECRETARY-GENERAL

The ITIO has thanked Commonwealth Secretary-General McKinnon for his stance following the publication of an OECD report, 'Tax Co-operation: Towards  a Level Playing Field'...



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