Is the OECD getting anywhere on tax havens?
The latest edition of Tax Notes (a rather high-brow publication that calls itself "The World's Only Weekly Journal of International Taxation") carries a review of Jason Sharman's recent book ("Havens in a Storm: The Struggle for Global Tax Regulation"). Without delving far into the details, here are a couple of excerpts from the review:
Previously, under the guidance of Treasury Secretary Lawrence Summers, the Clinton administration had led the crackdown on tax havens. . . . The Bush administration did not immediately oppose the OECD initiative. . . . But the Bush administration's support would be short-lived. A highly effective lobbying campaign was mounted by the newly formed Center for Freedom and Prosperity (CFP).
As Tax Notes explains, U.S. Treasury Secretary Paul O'Neill subsequently said after the lobbying campaign that the U.S. would not not support the OECD initiative.
After O'Neill's announcement, the OECD efforts to curb ''harmful tax competition'' slowly dissolved into a series of toothless pronouncements, a mixture of cheerleading and scorekeeping that continues to this day. Beginning in 2001 the OECD started to abandon its confrontational approach. Tax havens were now ''participating partners.'' The original July 31, 2001, deadline to avoid defensive measures came and went without a murmur, and the OECD later publicly admitted that it had no intention to pursue them in the future.
The OECD also downsized its goals. Its entire focus became information exchange on request with tax havens on civil tax matters. Even this was undermined by something called the ''Isle of Man clause.'' Under this proviso, agreed to by many of the havens, no reforms were required until every listed state and every OECD member state - including Luxembourg and Switzerland - committed to do the same. In 2003 this condition was extended to include third-party competitors such as Hong Kong and Singapore. Therefore, in Sharman's words, tax havens ''were in effect not committed to anything.'' He continued:
As a result, the OECD abandoned the goal of establishing a universal standard and uniform timetable for exchange of civil tax information, freeing ''participating partners'' from commitments they had made earlier. Thus the OECD had to give up its ambition to regulate international tax competition. Furthermore, it had abandoned the exclusionary ''name and shame'' approach and had been forced back on its traditional methods of seeking to raise regulatory standards by dialogue, persuasion, and peer pressure.
But as Tax Notes' Marty Sullivan comments, the OECD approach to information exchange was weak from the outset: its focus on information exchange on request only allows for corroboration and embellishment of existing evidence but does not contribute towards discovery and tracing of tax evaders. The EU has provided a vastly superior model through its focus on automatic information exchange, which has a far greater deterrent effect on the low profile tax evader who might not otherwise attract the attention of investigating authorities. The tax avoidance industry is well aware of the greater potency of automatic information exchange -- which it condemns as 'fishing expeditions' -- and consequently lines up with the OECD approach, which is far less threatening to its clients.
Around a year ago Jeffrey Owens, who leads the OECD initiative, conceded during discussion with senior TJN activists in Washington that we had every right to be critical - only that we should give the OECD process a further 12 months to demonstrate its effectiveness.
Those 12 months have now passed. And we believe that the OECD process has not demonstrated that it is making a serious dent in the tax haven problem.