President of the EU Commission Jose Manuel Barros
You really cannot make this stuff up!
So the EU Commission publishes its long awaited tax haven blacklist of uncooperative countries.
British Virgin Islands’ Minister of Finance believes that competition and the dictates of the global tax transparency agenda continue to have a negative impact on the territory’s principal money earner – financial services.
The significance of this activity cannot be overstated as its contribution to government earnings is estimated at 93.7%.
Finance Minister Orlando Smith is right to be concerned because the close of 2013 saw the BVI blacklisted by France amid a storm of controversy about that territory’s ability to effectively fulfil its treaty obligations to France under their 2010 Tax Information Exchange Agreement. More here.
BVI’s competitiors for business – Jersey and Bermuda – were also blacklisted by France but received a much welcomed ‘gift’ as they were removed from the list days before Christmas.
Despite assurances by Finance Minister Smith that France is satisfied with the process it has in place to deal with information requests under the treaty, so far no such indication has been given by France.
As a result, investors with assets in the BVI remain exposed to the application by France of a 75 percent withholding tax.
It is little wonder then that in his January 14, 2014 Budget Speech Minister Smith referred to the territory’s International Tax Authority, which he said has “made significant inroads in the management and fulfilment of the BVI’s international tax obligations.” He went on to say that he expects the unit to produce a “paradigm shift in the manner in which the BVI deals with its international tax obligations.” More here.
Alexandra Robbins, automatic exchange of tax information, Beneficial ownership, blacklist, Business, G20, G8, Health, Hyperion Books, OECD, Offshore financial centre, Overachievement, overachiever, tax evasion, tax fairness, tax haven, United States
You know the type, they have to run faster and jump higher. Whether at work or play, these “overachievers” get superior results through excessive effort. Driven to complete tasks above and beyond expectations, they often set very high, sometimes unrealistic, goals for themselves.
In Alexandra Robbins. The Overachievers: The Secret Lives of Driven Kids, Robbins describes teenagers who look at themselves through the prism of an ‘overachiever’ culture and come to the conclusion that no matter how much they achieve, it will never be enough. As a result, they become obsessed with success and contend with physical deterioration and illness. You only have to read of an undergraduate ‘walking off the roof’ of some high-rise to understand the dilemma of a chronic overachiever.
According to psychologist Arthur P. Ciaramicoli, this “curse of the capable,” is “a complex web of emotions that drives people to hide their genuine needs behind a mask of over-achievement.” He claims that people get hooked on “the quick fix of over-achievement to compensate for wounded a self-esteem.” He also explains that “chronically-overachieving people often don’t realize the unrecognised needs driving them from the healing conditions necessary for fulfilled lives.” What the overachiever fails to understand is that the temporary ‘high’ of ‘compulsive over-achievement soon passes, and is merely part of an on-going cycle of achievement followed by disappointment.
Like students, workers, and athletes, countries too can become chronic overachievers. I do not mean the term’s figurative use as when a country with an unsustainably high per capita income is described as “overachieving”. What I am referring to is the psychological state of an overachiever who is driven to go above and beyond,in an endless search for validation, affirmation of self worth, and in some extreme cases, the essence of their identity.
Over-achievement, its causes, practitioners and effects are not just, in my view, the privy of the person. It can have equal application to small jurisdictions, particularly those with few tangible natural resources and a history of colonisation. The ‘overachiever’ phenomenon is especially useful in understanding why successful island Offshore Financial Centres (OFcs), at the mere utterance of a new regulatory or legislative standard, are the first to demonstrate compliance. They are also quick to tell all who will listen, though knowing deep down that few care, of their success in meeting and exceeded compliance expectations. While chronic ‘underachieving’ countries, also engaged in the business of offshore seem never to tire of the criticism levelled at them about their lethargy and their own unresponsiveness to the implementation imperatives they have set for themselves, and imposed on others.
Some believe that at the core of a country ‘overarchiever’s malaise’ is fear. Fear of blacklisting and economic sanction in the case of the small island OFCs, comparable to a student’s fear of rejection by teachers or parents. This apprehension is well-founded, at least in the case of OFCs. It is however ironic that underachieving countries never seem to lack ‘friends’ and those willing to overlook, conceal or justify their failures and short-comings. For the OFC, if the truth of their success cannot be dis-credited, then something else must be found wanting; something that usually cannot be changed and is indeed extraneous to issue which was the basis of their success in the first place. For this reason every success by OFCs in the area of transparency and exchange of taxpayer information is countered by reference to their low or absent tax regimes, even as their detractors admit that this is part of the OFCs sovereign right, or in the case of others, part of the limited power of self-rule that has been devolved to them.
Fear is one of the most powerfully motivating forces known to mankind. This is the case whether fear is experienced by an individual or an organised society. To take a recent example, the seemingly compulsive need of OFCs to be counted among the first to draft comprehensive, well thought out national action plans with ready application to what the OECD describes as the “step change in the international transparency agenda,” is clearly driven by fear of ostracism and derision. There is however, to my mind, something more that accounts for this attitude, something more primordial.
There is a correlation between the systematic diminution of a society’s collective feeling of self-esteem and the number of times that, just when an OFC fulfils what were the stated requirements of a prescribed standard, often before anyone else, and within unnecessarily truncated time-frames, these rules are abandoned as unsatisfactory, insufficient or unworkable.
A society that suffers consistent and deliberate mis-characterisation, designed to invoke self-righteous ire for the sake of publicising a cause in which few are innately interested, while deflecting criticism from others, must I think, soon cause a society to become ill at ease with itself, and others. In an attempt to gain the acceptance that they crave, this can lead OFCs, to enthusiastically and sometimes prematurely accept new rules because they envision another opportunity to excel and win favour.
This exercise in early voluntary compliance can cause OFCs who are established industry leaders to shift their focus from customer retention and attraction. Instead they may, even if for a time, become overly preoccupied with trying to gain the admiration, respect and acceptance of a constituency that, though able to threaten their core business, are in fact, their rivals for market share and are unrepresented in every aspect of the OFC’s customer demographic.
It is one thing for an OFC to receive accolade for the soundness of its regulatory environment, and striking the right the balance between effective regulation and business facilitation. It is quite another to be constantly maligned and ridiculed as a society that ‘takes food from the poor’, enables global corruption and is no more than a bottom-feeder in the world’s financial ‘eco-system’.
Whether it is countries engaged in the legitimate provision of business and financial services in accordance with established, not ‘wished for’ global standards of conduct; or a prisoner of war, this type of psychological assault has the same result – the wearing down of the victim’s resolve to do anything further, even on pain of death.
This ‘curse of the capable‘ can be likened to the fate of a pet hamster, dutifully stationed on, for our purposes, a never-ending treadmill of fairer, better regulation to prevent tax avoidance and evasion; while facilitating increased transparency; and coupled with whatever whimsical devices the ‘tax fairness’ lobby can conjure up. There comes a time when, like the hamster, an OFC has to decide whether it wants to continue to ‘tread water’ while entreating everyone to observe how good a job it is doing of not drowning; or to shift their focus to how poorly its habitually underachieving competitors are performing and the effect that these countries regular near-drowning episodes have on their own people, OFCs and the rest of us.
blacklist, Convention on mutual administrative assistance in tax matters, G-20 major economies, Global Forum, London, OECD, OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, offshore banks, Offshore financial centre, Organisation for Economic Co-operation and Development, tax fairness, tax haven, tax justice
On page 11 of the OECD report to the recently concluded G8 Summit titled “A Step Change in the Transparency Agenda” is the following footnote:
“In view of the next G20 Summit, we also strongly encourage all jurisdictions to sign or express interest in signing the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and call on the OECD to report on progress. See paragraph 14 of 19 April Communique of G20 Finance Ministers and Central Bank Governors.
Paragraph 14 of the 19 April Communique of the G20 Finance Ministers and Central Bank Governors reads as follows:
“More needs to be done to address the issues of international tax avoidance and evasion, in particular through tax havens, as well as non-cooperative jurisdictions. We welcome the Global Forum’s report on the effectiveness of information exchange. We commend the progress made by many jurisdictions, but urge all jurisdictions to quickly implement the recommendations made, in particular the 14 jurisdictions, where the legal framework fails to comply with the standard.
Moreover, we are looking forward to overall ratings to be allocated by year end to jurisdictions reviewed on their effective practice of information exchange and monitoring to be made on a continuous basis. In view of the next G20 Summit, we also strongly encourage all jurisdictions to sign or express interest in signing the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and call on the OECD to report on progress.
We welcome progress made towards automatic exchange of information which is expected to be the standard and urge all jurisdictions to move towards exchanging information automatically with their treaty partners, as appropriate.
We look forward to the OECD working with G20 countries to report back on the progress in developing of a new multilateral standard on automatic exchange of information, taking into account country-specific characteristics. The Global Forum will be in charge of monitoring. We welcome the progress made in the development of an action plan on tax base erosion and profit shifting by the OECD and look forward to a comprehensive proposal and a substantial discussion at our next meeting in July.”
The clear mandate from the G20 Finance Ministers and Central Bank Governors to the OECD is to create a ranking – a list – of jurisdictions based on their Phase 2 Assessment on the effectiveness of their legal regime for exchange of information ‘on request’, which is the standard that OECD Global Forum endorsed at its 2009 meeting in Los Cabos, Mexico.
In addition to that Assessment, jurisdictions who had unresolved issues from their Phase 1 Assessment, though given a ‘pass’ to Phase 2, committed to providing updates about their progress in changing certain determinations made about their legal regime supporting information exchange from ‘not in place’ or ‘in place but needs work’ to ‘in place’.
The documents publicly available on the OED Global Forum (GF) website http://www.oecd.org/tax/transparency/provide no evidence that, at the last plenary session of the GF, held last year in South Africa, members agreed a ‘step change’ to the transparency agenda which has been the basis of their compliance activities since 2009.
Further, there has been no public information released to indicate that the GF will meet before September this year to consider what has emerged from the G8 meeting; and what will emerge from the next meeting of the G20 Finance Ministers and Central Bank Governors next month. GF Plenary sessions are held annually. This year if the meeting is held after September it means that GF members will have about 10 weeks to demonstrate satisfactory compliance under the Phase 1 & 2 Assessment criteria before the OECD is expected to produce its ‘rankings’. That is, of course,if GF members wait until the G20 confirms the expected move to ‘automaticity’.
Assuming therefore that, as was the case with the ‘on request’ transparency standard, recommended by the OECD, then accepted by the G8 and finally, confirmed by the G20 as the global standard; the new ‘automatic sharing’ standard, crafted by the OECD,now endorsed by the G8 ,will likely be confirmed by the G20 as the new standard this September.
As happened in 2009, by year-end the OECD may well produce a list of jurisdictions in ‘substantial compliance’ with the prevailing ‘on request’ standard. Given though that the 2012 ‘whitelist’ excludes only one member of the GF – Nauru – any adjustment to the ranking will likely be based on new information available since that table was published.
I suspect that the reason why the OECD, in its report to the G8, reiterated the recommendation by the G20 Finance Ministers and Central Bank Governors that all jurisdictions should sign up to the new ‘automatic’ standard, or at least express a willingness to do so, is to avoid GF members being ‘blacklisted as a ‘tax haven’ or an ‘uncooperative jurisdiction’.
The implication may be that even if a jurisdiction’s assessments are insufficient to justify a ‘pass’ under the old dispensation, this can be remedied by its early acceptance of the new ‘automatic’ standard, evidenced by signing or expressing an interest in signing the OECD Multilateral Convention on Mutual Assistance in Tax Matters.
Indeed, this may well explain the significant up-tick in interest from GF members in the OECD Multilateral Convention since the April meeting of the G20 Finance Ministers and Central Bank Governors.
My prediction, based on the above, is that the next OECD ranking of countries will include a category of jurisdictions who have indicated no interest in the new automatic exchange of information standard and have yet to receive a passing grade in either one or both of their assessments.
What do not know is whether a jurisdiction who is fully compliant with the elements in both assessments, if such a jurisdiction exists, will still be blacklisted by the OECD,if they too, express no interest in ‘automaticity’.
automatic exchange of tax information, blacklist, Convention on mutual administrative assistance in tax matters, exchange of tax information, Financial services, G-20, Hong Kong, money laundering, MYOB, OECD, OECD Global Forum on Tax, OFCs, offshore banks, Offshore financial centre, Singapore, Switzerland, Tax avoidance and tax evasion, Tax Information Exchange Agreements, Tax treaty
In the absence of a global body to manage the international tax agenda – and no, the OECD, even if backed by the G-20 does not count – can the WTO fill the void?
The WTO is after all a proper, truly representative organisation styled after the one-country-one vote fashion that, despite the shortcomings of this United Nations model, still represents democracy in action.
Why ask the question in the first place when the WTO deals exclusively with trade related matters in both goods and services? The simple reason is that tax and trade are two sides of the same coin. Without trade there is not much to tax, and without tax, competitive tax that is, there is not much by way of trade in financial services.
It’s not surprising therefore that Panama, like the EU and the US before it, has sought to trigger the WTO’s dispute settlement mechanism to address a matter of concern not only to this prominent Central American financial centre, but one that plagues a number of WTO member states also heavily invested in trade in financial services.
After consultations failed to resolve the issue earlier this year, on May 13th, Panama formally requested the creation of a Dispute Settlement Panel to determine, among other things, whether Argentina’s tax haven blacklist is contrary to the WTO agreement because this very common form of tax discrimination, “impairs the conditions of competition between like services and foreign suppliers of like services, by according less favourable treatment to the services and service suppliers of the listed countries, in a manner inconsistent with GATS Article II:1.”
Like many other domestic blacklists, Argentina’s makes the export of financial services from listed countries more expensive, and by extension less attractive, than exports from countries, not included on the blacklist, because of the 35% profits tax per transaction imposed on Argentines conducting trade with blacklisted countries. This according to Panama’s brief amounts to discrimination of a kind not allowed by the WTO.
The fact that just over two weeks after Panama made its request for the constitution of a Dispute Settlement Panel, Argentina repealed the offending blacklist, which it maintained for 13 years, does not affect the validity of the suit.In fact, the dispute is even more relevant because the replacement list is framed as a positive listing which, by the exclusion of some countries, still gives rise to tax discrimination.
Ultimately, the question that Panama is asking the WTO to resolve is whether tax measures applied by some WTO members to other blacklisted members distort trade by deliberately affecting the profitability of those entities involved in that trade, in this case financial services, and as a result contravene the anti-discriminatory rules of international trade law.
Could the much maligned WTO undo with one decision what the membership of that other ‘pretend’ international body has spent the last twenty years building?
For more on Argentina’s repealed blacklist:http://services.taxanalysts.com/taxbase/wwnews.nsf/Recent+News/A2F3986B881331E685257B7D000602D8?OpenDocument
Just another WordPress.com site
Matters of U.S. Citizenship Renunciation-Relinquishment & LPR Abandonment
Follow the work of the Special Advisor to the Government of Barbados on International Business, Financial Services and Investment
Opinion, Up-Dates and Trend-Spotting on Tax, Investment and Trade Aspects of International Business and Financial Services.
Strategizing International Tax Best Practices - by Keith Brockman