Tax Haven Blacklist: OECD Presents Its Criteria

G20 Finance Ministers met last week of July 2016 and vowed to work closer together to combat tax avoidance.

Furthermore, the OECD presented them with the set of criteria it will use to develop its new blacklist of non-cooperative jurisdictions.

Earlier this week, the G20 finance ministers met in Chengdu, China, and decided to work closer together to maximize tax collection and curtail tax avoidance by multinational companies in their jurisdictions.

A Communiqué by the Ministry of Finance of the People’s Republic of Chinasummarized the meeting’s accomplishments, welcoming “the recent progress made on effective and widespread implementation of the internationally agreed standards on tax transparency.”

As part of these discussions, the statement reiterated the G20 countries’ “call on all relevant countries including all financial centers and jurisdictions which have not yet done so to commit without delay to implementing the standard on automatic exchange of information by 2018 at the latest and to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.”

Likewise, the announcement highlighted the G20 countries’ full support for “the Global Forum’s monitoring of the implementation of automatic exchange of information” as they have high expectations for the full report’s release towards the end of 2016.

Speaking on behalf of the United States, Treasury Secretary Jacob Lew said, “When the current cross-border tax rules were developed they were tied to concepts that reflected geography and national boundaries” and not to today’s world of advanced “technology and cloud computing.”

Lew urged ministers in attendance to develop “a common standard across countries on important issues of transfer pricing” to “collectively” tackle issues of tax avoidance and evasion.

Most importantly, the aforementioned communiqué expressed the group’s choice to “endorse the proposals made by the OECD working with G20 members on the objective criteria to identify non-cooperative jurisdictions with respect to tax transparency.”

Prior to the meeting in China, the OECD presented the G20 countries with a proposal on how it will assemble the list of non-cooperative jurisdictions that will be released in July 2017.

According to MNE Tax, countries will be considered a non-cooperative jurisdiction if they do no meet two out of the three following criteria: “the country must achieve a rating of “largely compliant” with respect to the exchange of information on request (EOIR) standard; must commit to the automatic exchange of information (AEOI) standard, with the first exchange by 2018; and must join the multilateral Convention on Mutual Administrative Assistance in Tax Matters or have a sufficiently broad network permitting both EOIR and AEOI.”

After studying this proposal, various tax justice proponents criticized the criteria and claimed that it falls short of what’s needed to develop a comprehensive and realistic list of non-cooperative jurisdictions.

The Tax Justice Network’s Nicholas Shaxson, author of Treasure Islands, says, “The OECD doesn’t seem to have learned its lesson from its last big war on tax havens, which began in 1998. It identified the small, weak players as the miscreants and whitewashed the big players. That campaign collapsed under the weight of its own contradictions. If the OECD doesn’t summon up some courage to do the right thing this time, it puts this whole promising edifice of global transparency at risk.”

Furthermore, according to Moran Harari, a Tax Justice Network analyst, “The litmus test of the value of the new OECD criteria will rest with the treatment of USA. That only two of the three criteria must be met is a worrysome feature, and combined with the requirement that signature of the multilateral tax convention is enough, appears to be tailored to let the US wriggle through.”

However, according to the OECD’s Secretary-General Angel Gurría, this set of criteria is already working and will bring forward greater transparency.

During the meetings in China, Gurría said, “These proposals do have an impact, and it was with recognition of the pending application of those Objective Criteria, that at the end of last week, Panama took the first step to join the multilateral Convention on Mutual Administrative Assistance. In terms of delivering on their commitment to undertake automatic exchange of financial account information by 2018, this is a very big step forward, and we hope will be swiftly followed by completing the other necessary steps to full compliance.”



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