Wednesday, September 08, 2010

TIEAs: 23 is the magic number

This blogger has been idly counting the number of TIEAs signed on the OECD's TIEA list, for a research report. (As a reminder, the OECD said that tax havens could get off their blacklist if they signed a mere 12 TIEAs with other jurisdictions, so the tax havens went ahead and signed a bunch of deals with other tax havens and tiny insignificant territories.) We've written a lot about them, here.

A rather odd thing stands out. Of the 373 TIEAs listed on its site, we find that:

Greenland has 23
The Faroe Islands have 23
Finland has 23
Denmark has 23
Iceland has 23
Sweden has 23
Norway has . . . . 22

What is that all about? Some sort of co-ordinated thing is going on, clearly. And what's with Norway? Who is missing? And we should point out that nearly 43 percent of all TIEAs were signed with these countries alone.

We emailed a few experts in the field about this, and we got a few comments back. One mathematically inclined commentator said:

"373 out of a possible >30,000. And if you were to weight for the number of citizens involved in each potential TIEA, that proportion would presumably look much, much smaller..."

Indeed. It turns out that nearly 20 percent of these TIEAs are between those jurisdictions mentioned above and a bunch of countries that have a combined population of little over 400,000 people. Take a look at the Netherlands Antilles page, for example: it shows a secrecy jurisdiction getting off the OECD blacklist by signing TIEAs mostly with other secrecy jurisdictions. It supports another commentator's description:

My term of choice is "charade".

Another commentator added more precision to the number of potential TIEAs too:

"There are 242 countries with a fiscal sovereignty, if we square 241 (they don't sign with themselves) this results into over 58 000 potential bilateral treaties."

(remember, though, that in addition to this 373 TIEAs, there are around 3,000 DTAs out there - click here for background on the difference.) And as for the initial question in the blog:

"The key to your conundrum is clearly that the Scandinavian countries have been negotiating TIEAs jointly. This is possible and makes sense for them, as they have a multilateral tax information system among themselves, which was also the basis for the OECD/Council of Europe multilateral treaty, of which they were founder members. I guess the interesting question is which of the TIEAs they signed has not been extended to Norway?"

A quick check reveals that the missing TIEA is in fact Norway-Netherlands Antilles. More updates keep coming in. Here is one from Finland:

"Last time I did my Nordic geography (4th grade) there were 5 Scandinavian countries, and 2 dependent territories of Denmark with fiscal autonomy (we Finns don't give fiscal autonomy for Aland; they harbour tax haven tendencies in any case).
. . .
Instead of stuffing the ballots, how about the Scandis stuffing the tax havens with information requests? I remember it took only 10 or so information requests for the Jersey police to call in the cavalry of the London Met Police to sort out the back log, and what if the scandinavians would make a 100 or a 10,000 or 100,000 information requests to a selected number of tax havens, all via official channels, and with the support of an extensive diplomatic network.

A most interesting thought. This was followed by another, from Denmark:

"These days media is obsessed with the fact that Danish Tax authorities have demanded access to transactions between the Banks and 55 tax havens. This has provided 5 million transactions which they are now starting to analyse, and the amount involved is named as 1 bio DKR (130 million euro).

Now to the tax authorities this will be the test case if the TIEAs they have signed with a number of tax havens are worth the paper they are written on. Now they will have a lot of smoking guns to carry to the tax havens and ask for information. For this purpose the TIEAs can, maybe, be useful.

However, I agree that the signing of TIEAs with the group of seven Nordic countries has been extremely useful for tax havens eager to get of the OECD list, though I believe that the TIEAs in them selves are better than no agreement of exchange?"

Useful again, and the contact subsequently provided a link to this Danish story, which an internet translator has rendered mostly comprehensible to English speakers here. We hope to provide more details soon on this most interesting angle. On Norway:

"I believe the treaty (TIEA) that Sweden has that Norway does not have is the agreement with the Turks and Caicos Islands, entered into in 2009. That treaty seems a bit better than the typical "information on request" treaty in that it does not seem to require much information from the requesting party. All of the countries on your ist other than Norway do have a treaty with the Turks and Caicos Islands. . . . Although Norway has negotiated in 2009 a T&C treaty, it is not yet in effect (according to the tax analysts database). Norway does not have a TIEA with the Netherlands Antilles, as you indicated, but it has a full treaty, which was updated in 2009 to include the "new" Article 26 (actually, Article 27 in that treaty)."

The next comment on the sudden surge in TIEA-signings since 2009 was rather more colourful.

"Yeah, we noticed this some time ago. I believe the technical terms are "ballot stuffing.."body-counting"..."window-dressing".."Madoff accounting".."whitewashing.."etc. The Scandinavian ministries/counterparties (systematically) involved in this expanding TIEA laundry circus deserve to be roasted at every opportunity. While some are too diplomatic to say so, let me also say again: the whole OECD-backed TIEA process is, at best, a waste of precious time. At worst, it is a pretty good example of outright FINANCIAL FRAUD. Tax activists should have NOTHING to do with it. Indeed, "TIEA fraud" is one reason why so few developing countries take the OECD seriously."

And, in a later email, the same commentator:

"Do they have a T shirt? "Faroes:We're Up for Anything!"

All a little over the top, perhaps, but stinging commentary is appropriate here.

More broadly, we received this other comment about the OECD yesterday. Although not written in the context of this particular question (it was written in the context of the OECD Global Forum,) it is pertinent here too. Forgive the strong language, but it is quite appropriate to the situation - this ultimately affects real people with real lives in developing countries.

"The OECD tries to co-opt everyone else, and bring everyone into the OECD umbrella, and in the process weaken/debilitate any contrary arguments. Indeed, if developing countries are becoming more active in international tax matters, the fact that developing countries are in the Global Forum is a very strong argument that developing counties need, now more than ever, a contrarian view and contrarian information. Is the world going to end up following the OECD line on every tax matter, such as exchange of information and transfer pricing, considering that the OECD positions on both these fundamental issues are intended to "rape", and do "rape," developing countries."

Strong, but perhaps not too strong in light of the real human impacts. Where is Brazil on the OECD's list? India? Nigeria? South Africa? In fact, we think there isn't a single African country on the list (though for time reasons, we haven't yet checked - grateful for any commenters who can find the time to check all 373.)

For a more thorough, but older, study on the question of TIEAs, with a special focus on developing countries, see Misereor's study, here.


Anonymous Anonymous said...

The signing of TIEA is used by the government very heavily to show that they are coming down heavily on tax avoidance. Very often they are published in language like "forced tax havens to share information" and "nowhere to hide for tax cheats anymore". Even internally on the tax authorities intranet the TIEAs are welcomed as the greatest thing since sliced bread.

5:38 am  

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