Clearly, there’s nothing like the publication of a blacklist – or grey list – to get people’s attention. After the best part of a decade, the efforts of the Organization for Economic Co-operation and Development to push offshore centres and some of its own members into line on transparency and exchange of information on tax issues have suddenly come to fruition, as international financial centres that resisted the OECD’s campaign or paid only lip service to it scramble to conclude enough tax agreements to get onto the ‘white list’ of compliant jurisdictions.
The biggest obstacles to the OECD’s original campaign to impose uniform standards on the sharing of tax information were two of its own members, Luxembourg and Switzerland, which refused to abandon or water down their statute-enshrined banking secrecy rules.
Their unwillingness to fall into line made it difficult for the OECD to impose much pressure on outside jurisdictions to comply (although the lack of enthusiasm of the Bush administration in the US didn’t help). Some so-called tax havens signed up to the standards but then did little to implement them; others, like Monaco and Liechtenstein, simply thumbed their noses at the ‘rich nations’ club’. How many divisions did the OECD have, anyway?
More than anyone imagined, apparently. All it took was the determination of the G20 to use the economic turmoil as a lever to bring recalcitrant jurisdictions into line – and the election of a US president with much greater determination to stamp on offshore tax avoidance – and the holdouts are rushing to demonstrate their new-found commitment to the OECD-sponsored internationally-agreed standards.
Some offshore jurisdictions – Guernsey, Isle of Man, Jersey and Mauritius – had already seen which way the wind was blowing and concluded the required 12 tax information exchange agreements to be accepted as having substantially implemented the internationally agreed tax standard.
But countries and territories including Bermuda, the BVI, Cayman, Gibraltar, Luxembourg and Switzerland were taken aback to find themselves ‘named and shamed’ by the OECD at the beginning of April for not having followed up on their commitment to the standards – in the case of the latter two countries, because they had only signed up to it a matter of days earlier.
Suddenly the grey list is getting shorter as its members rush to sign Tieas with OECD members. Bermuda was the first to reach 12 agreements (up from just three on April 2), and it was followed by Luxembourg last week. The Cayman Islands, which already had eight Tieas in place, signed its 11th agreement with the Netherlands on July 8 and is hoping to reach the required hurdle shortly, with negotiations well advanced with France, New Zealand and Portugal. Switzerland is looking to move off the grey list by the autumn.
Tax information exchange may make jurisdictions less attractive as centres for private wealth (although less so when countries and territories around the world are adopting the same standards) but for fund centres getting onto the OECD’s white list as soon as possible is essential if they are to retain the confidence of investors, whose views on the quality of a fund’s structure and the probity of its domicile are suddenly factors that promoters are obliged to take into account.
And they may have to brace themselves for more steps to stay in the good books of the G20 and OECD countries. In Berlin last month, OECD ministers announced plans for a system of peer review to ensure that the agreements now being signed really do lead to implementation of the international standards. Otherwise, they threaten, existing Tieas could be torn up and other sanctions applied. Falling into line is the price of staying in the game, and any jurisdiction that fails to do so risks seeing its fund sector and other international financial businesses evaporate overnight.