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Towards a Level Playing Field,
second edition.


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

 


24 March 2003

Europe threatening OECD’s plans to swap tax information

As EU ministers delay savings tax directive, small states call for urgent meeting with OECD over embattled level playing field

Friday’s decision by European Union (EU) heads of government to postpone adoption of their savings tax directive does not lift the threat posed to the Organisation for Economic Cooperation and Development’s (OECD’s) own initiative to increase the transparency of financial transactions.

The proposed EU directive ignores an OECD commitment not to favour its own members over small states. The International Trade and Investment Organisation (ITIO) believes the OECD should call an urgent meeting to discuss the implications.

“As matters stand, the OECD’s ‘harmful tax competition’ project appers compromised and its future in doubt,” says ITIO Chairman Glenroy A Forbes in a letter to OECD Secretary-General Don Johnston. Mr Forbes is also Financial Secretary of the British Virgin Islands,

“The implementation of the savings tax directive currently under discussion by EU countries, all of whom are OECD members, may violate the OECD’s commitment to a level playing field,” explains Mr Forbes, “The EU action also represents a major challenge to the OECD’s own principles of transparency and exchange of information.”

The ITIO Chairman is calling for an urgent meeting of the OECD’s Global Tax Forum to discuss the impact of the EU directive. The OECD has already conceded that the EU directive may undermine its own tax project, yet has not called a meeting of the Forum to review the situation.

“Adoption of the EU directive has been delayed. This provides a breathing space for an OECD meeting to take place”, Mr Forbes added today.

Last year, by promising a level playing field (non-discrimination) between members (including all EU countries) and non-members, the OECD encouraged numerous small countries, including most ITIO members, to commit to exchanging tax information on request from 2006.

However, the proposed EU saving tax directive flies in the face of the OECD promise by giving four OECD members – Austria, Belgium and Luxembourg and Switzerland – a competitive advantage over non-OECD countries by allowing them to defer exchanging information until 2011 or later.

The ITIO represents 16 small and developing states working for a level playing field in the trade in services.

NOTES TO EDITORS

1. ITIO Chairman Glenroy A Forbes’s letter to OECD Secretary-General Don Johnston is below.

The ITIO

2. The International Trade and Investment Organisation (ITIO) was founded in March 2001 and groups 16 small and developing states across Europe, the Caribbean, Pacific, Latin America and Asia. It works for a level playing field in the trade in services, particularly in the development and implementation of new regulatory standards.

3. Members are Anguilla, Antigua & Barbuda, Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Cook Islands, Isle of Man, Labuan (Malaysia), Panama, St Kitts & Nevis, St Lucia, St Vincent & The Grenadines, Turks & Caicos and Vanuatu.

4. The Commonwealth Secretariat, Pacific Islands Forum Secretariat, CARICOM Secretariat, Caribbean Development Bank and Eastern Caribbean Central Bank have Observer status.

The EU savings tax directive and the OECD “harmful tax competition initiative”

5. The ITIO is asking for a meeting of the OECD Global Tax Forum to be specially convened to discuss the impact of the EU savings tax directive on the future of the OECD’s “harmful tax competition initiative”. The Forum comprises OECD members and the 31 small and developing countries that have committed to working with the OECD to develop new international standards for transparency and effective exchange of information.

6. These countries’ commitments were predicated on the basis of a level playing field between themselves and all OECD member countries, including the 15 OECD countries that are also European Union member states.

7. The fact that four OECD members, Switzerland, Luxembourg, Portugal and Belgium, who are among the “offshore” world’s principal “onshore” competitors, were allowed to opt out of the OECD process has already raised questions about the level playing field.

8. The proposed EU directive makes matters worse. It would require EU tax authorities automatically to exchange information on savings income. However, Austria, Belgium and Luxembourg have been offered an effectively open-ended transitional period in which they would instead impose a withholding tax on savings until such time as other “tax havens” – including Switzerland, the USA, Liechtenstein, Monaco and Andorra – introduced “equivalent measures”.

9. At a meeting on Friday 21 March, EU heads of government failed to overcome last-minute objections by Italy. A new date has not been announced for adoption of the directive.

10. OECD Secretary-General Donald Johnston protested in a letter to the Greek Presidency of the EU in mid-January that the savings tax directive could damage the OECD’s project. “If some OECD countries were to receive more favourable treatment as a result of the EU negotiations,” Johnston warned, “this could lead [committed jurisdictions] to withdraw their commitments.” Commonwealth Secretary-General Don McKinnon has also raised objections.

11. The governments of Antigua & Barbuda, the Cayman Islands, Panama and St Vincent & The Grenadines, along with other heads of government in CARICOM, have stated they will not participate in any further work of the OECD Global Tax Forum until there is a meeting to discuss the issue of a level playing field.



19 March 2003

Mr Don Johnston
Secretary-General
Organisation for Economic Cooperation and Development
2, rue André Pascal
F-75775 Paris Cedex 16
FRANCE

Dear Secretary-General

Request for meeting to discuss impact of EU directive on OECD level playing field

Following the ninth meeting of the International Trade and Investment Organisation (ITIO) in Panama City on 15 March 2003, I am writing to you in my capacity as ITIO Chairman and on behalf of ITIO members to request a strictly focused meeting of the Global Tax Forum to discuss the matters set out below.

As you know, many ITIO members have entered into commitments with the OECD to develop measures on transparency and the exchange of information in criminal and civil tax matters.

These commitments depend on OECD countries implementing a level playing field. This requires OECD members to introduce the same measures within the same time limits.

The ITIO rejects the OECD’s preferential treatment of certain OECD and non-OECD financial centres. It also believes OECD countries should not impose sanctions on non-OECD members when they refuse to do so for OECD members.

We regret, too, that, in violation of international law and WTO rules, countries both within and outside the OECD are already taking discriminatory measures against small countries, including ITIO members, on the basis of criteria developed by the OECD.

The ITIO is concerned that the implementation of the savings tax directive currently under discussion by EU countries – all of whom are OECD members – may further violate the OECD’s commitment to a level playing field. The EU action also represents a major challenge to the OECD’s own principles of transparency and exchange of information.

As matters stand, the OECD’s “harmful tax competition” project appears compromised and its future in doubt.

The ITIO calls on the OECD to hold an urgent meeting of the Global Tax Forum exclusively to address these specific concerns.

Yours sincerely

Glenroy A Forbes

Chairman, ITIO


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