The ‘End of Tax Havens’ – But Will Developing Countries Benefit?

A blog from Alex Cobham at the U.S. Center for Global Development, asking a question that we've raised before and which everyone must bear in mind in all the current noise about cracking down on tax havens. First, a bit of background.

"News broke on April 9th of agreement between the UK, France, Germany, Italy and Spain to pilot “multilateral automatic tax information exchange.” In France, President Hollande went further – announcing a draft law aimed at ‘moralising’ French public life, as former budget minister Jerome Cahuzac was expelled from the governing party for repeatedly denying the existence of his Swiss bank account. Hollande was explicit about his intentions at a press conference: “tax havens must be eradicated in Europe and worldwide.”

Good summary, though perhaps we'd mention the ICIJ "Offshore Leaks" story too, as part of the general political mix.

Cobham then outlines several reasons for wariness, none of which should be forgotten.

First, all we've really seen so far is rhetoric, really - and on tax havens, rhetoric is not new. Previous promises have all but fallen into the dust - and let's not forget that the defenders of tax havens and offshore activity include a number of powerful G20 countries. 

A second reason for wariness is the relative absence of appropriate practical steps to follow. However, current developments are certainly promising in this respect, for they include calls for implementing a multilateral tool for automatic information exchange. This is important.

He also notes a concern we've raised: that the sudden new focus on what some have inappropriately called the "Euro-Fatcas" could take the wind out of the sails of the all-important process to push forwards loophole-plugging on the European Union Savings Tax Directive (EUSTD) and associated processes. We are still getting our heads around this and currently think these concerns may turn out to be small ones - but we need to keep a close eye on developments here.

But here is a big one concerning the multilateral information exchange pilots. He notes 1) the 'glass half empty' idea that these agreements may not amount to so very much, and 2) the 'glass half full' perspective, where the FATCA model that is supposedly the basis for the information exchange pilots might be swiftly and easily pushed out to a number of jurisdictions, and quickly multilateralised, delivering a lot of quick wins in a short time. He then goes on:

"Here’s my worry. In neither case (1) or (2) is there any reflection of the importance of including developing countries in automatic information exchange. Case (2) looks better, again, for this, but in fact there are currently no developing countries among those listed by Treasury as having negotiated bilateral treaties to make FATCA work. (As an aside, it’s also worrying that the FATCA treaty options include a non-reciprocal one: so that countries would not necessarily get any benefit in terms of US transparency from signing up.)

So it’s not clear how quickly developing countries could join. And that is the question that the G8, and perhaps the UK chair in particular, should be asked. And then the ball passes to the G20… "

 Good questions.