Costa Rica, Malaysia, Philippines and Uruguay. These were the only four jurisdictions which appeared in the OECD black list published on April 2, the day of the G20 summit. “They have now officially informed the OECD that they commit to co-operate in the fight against tax abuse. As a result, they have been moved to the category of “jurisdictions that have committed to the internationally agreed tax standard, but have not yet substantially implemented”, reads the OECD press release of less than one week later. This means no black spots are left on the tax havens list.
The G20 communique claimed "the era of banking secrecy is over". According to the OECD this mission is already accomplished: only greylisted countries expressing willingness to reform and virgin whitelisted compliant jurisdictions exist now. Is the OECD the most effective body on earth to tackle the tax evasion industry? Or is this black list just a big smoke screen that diverts attention from the real measures needed to stop banking secrecy and capital flight, and distract from other crucial issues that should have been tackled in the London summit?
The fight against tax havens has progressed in the last few weeks much further than anybody could have imagined a couple of years ago. But the progress seems to be essentially rhetoric. Compared with the strong statements we have been hearing from many European decision makers the measures taken fall dramatically short. The French Prime Minister’s call for "the disappearance of black holes in the financial system" is very far from happening. Furthermore it is worrying that while the G20 have called for sanctions against tax havens, none has been announced yet. Paradoxically it is rather the other way round: tax havens seem to be dictating the way the OECD should operate.
The OECD's 7 April press release explains that the four previously blacklisted countries: "have now officially informed the OECD that they commit to co-operate in the fight against tax abuse, that this year they will propose legislation to remove the impediments to the implementation of the [OECD tax information exchange] standard and will incorporate the standard in their existing laws and treaties". As a result, they have been moved to the category of “jurisdictions that have committed to the internationally agreed tax standard, but have not yet substantially implemented”. An analogy would be a burglar who has been thieving for years escaping sanction merely becaues they promise to clean up their act later this year.
As well as announcing reforms or intended reforms some countries including Luxembourg and Switzerland have been putting pressure on the OECD. Following this OECD Secretary general, Angel Gurria addressed a letter to Luxembourg government in early April confirming that no new criteria was being developed by the OECD and insisting that “none of our members qualify as a tax haven”. A week later, having found its name on the grey list, Switzerland reportedly announced sanctions against the OECD, namely, blocking some €136,000 it was due to pay the organisatoin. The Swiss also threatened not to pay their annual €6.5 million fee to the OECD and even to block any progress on further cooperation with China, India and other emerging economies.
The fact that some of the best known tax havens are now asking to be immediately upgraded to the white list is sadly not surprising when one looks at its newest white members. Jurisdictions like the Isle of Man, Jersey or Guernsey, all prominent tax havens, are since April 2nd on the white list, after having agreed on some bilateral information exchange treaties. The question is: are these agreements good enough to ensure these territories are no longer tax havens? The answer is clearly: no, they are not.
The information exchange modalities considered are namely Tax Information Exchange Treaties (TIEAs) and Double Taxation Agreements (DTAs) but they both have serious limitations. Firstly, the information exchange is only made upon bilateral agreements and this is not the adequate response to the global challenge tax havens represent. The bilateral approach makes it very hard to implement an effective global action against tax evasion and avoidance. It also leaves out developing countries that are not likely to conclude such agreements on a bilateral basis. Multilateral agreements should be the basis for the information exchange.
As a recent Tax justice Network briefing explains, "There are between 50 and 72 secrecy jurisdictions in the world and far more than a hundred countries with which they could negotiate information exchange agreements. Yet by March 2009, only 49 TIEAs have been signed between OECD countries and secrecy jurisdictions and only 18 have entered into force. Thus, in almost a decade, the thirty most powerful and technically sophisticated states in the world have only negotiated a handful of such agreements each. The report adds that “It is very unlikely that even a medium-sized developing country like Chile, India or South Africa would have sufficient leverage to strike a deal with, for instance, Switzerland, on similar terms to those struck by the US and Germany".
Secondly, the information exchange is made upon request, meaning that the burden of the proof falls into the requesting authority and makes it very hard for a country to provide enough evidence to access the requested information. The above mentioned briefing adds on this: "a detailed case must be made, with the criteria set out in a lengthy legal document. (…) the authorities requesting the information must already have a strong case even before they request the information. This sets the bar very high indeed for tax authorities wanting to make a request". In order to address this problem automatic information exchange should be implemented.
Eurodad, TJN and many others have been calling a comprehensive multilateral approach that encompasses automatic exchange of information. There is already a concrete case of this kind of approach at the EU level, the European Savings Tax Directive currently under review. This multilateral model, based on automatic exchange of information should serve as a basis for global automatic information exchange agreements. European countries and more generally G20 leaders should be pushing in this direction if they are seriously committed to put an end to tax havens and their bank secrecy.