Combatting harmful tax practices

OECD Observer
Page 28 

A short list of seven uncooperative jurisdictions has been announced. The following jurisdictions, which have not yet made commitments to transparency and effective exchange of information, were identified on April 18 2002 by the OECD's Committee on Fiscal Affairs as uncooperative tax havens.

Andorra; The Principality of Liechtenstein; Liberia; The Principality of Monaco; The Republic of the Marshall Islands; The Republic of Nauru; The Republic of Vanuatu

In 2000 the list came to 38. Since then, 31 jurisdictions have made commitments to transparency and effective exchange of information and are considered co-operative jurisdictions by the OECD's Committee on Fiscal Affairs. The OECD would welcome continued dialogue with these jurisdictions and the prospect of their future commitment to transparency and effective exchange of information.

Why combat harmful tax practices

The more open and competitive global market of recent decades has had many positive effects on tax systems. Tax rates have generally fallen and tax bases have been broadened. Some tax and tax-related practices, however, undercut the gains that tax competition generates. This occurs especially if some countries introduce practices that encourage non-compliance with the tax laws of other countries.

Over the last 20 years, tax havens have flourished. The IMF estimates that assets worth more than $5 trillion are held offshore.

The ultimate losers are honest taxpayers. They end up paying for dishonest practices by shouldering a greater share of the tax burden, and their confidence in the integrity and fairness of the tax systems, and in government in general, declines. Since 1998 the OECD has co-ordinated action so that countries – large and small, rich and poor, OECD and non-OECD – can work together to eliminate harmful tax practices with regard to geographically mobile activities, such as financial and other service activities.

The OECD has published three reports on harmful tax practices:

Harmful Tax Competition: An Emerging Global Issue (1998); Towards Global Tax Co-operation: Progress in Identifying and Eliminating Harmful Tax Practices (2000); The OECD’s Project on Harmful Tax Practices: The 2001 Progress Report (2001).

These three reports, and the work on harmful tax practices in general, are important elements in the OECD’s efforts to foster integrity in government and economic growth and development. With regard to its own member countries, the OECD has provided guidelines for addressing harmful tax practices. These guidelines provide for a standstill from introducing new measures that are harmful, a review of existing measures for the purpose of identifying those that are harmful, and the removal of any practices that are harmful by April 2003 (or by 2006 if certain criteria are met). The OECD’s most recent efforts have been to develop guidance that will help its countries identify and eliminate any harmful aspects of their preferential tax regimes. The OECD is also seeking commitments from tax havens to adhere to the principles of transparency and effective exchange of information.

In 2001, Aruba, Bahrain, Isle of Man, Netherlands Antilles and the Seychelles agreed to co-operate in the OECD’s work. Several others joined them in 2002. These jurisdictions have been actively involved in developing a mechanism for the effective exchange of information with OECD countries. The OECD is working to involve non-OECD countries in its harmful tax practices work as well. In September 2001 it held a Global Forum to this end, involving officials from 88 countries and nine international organisations.

The OECD has also sought and received valuable input from civil society, notably business and labour. Their participation and that of non-OECD countries is a sign that the OECD project is not just about the importance of collecting taxes that are legally due, but that it forms a key part of the international effort to promote integrity and stability in a globalised world.

©OECD Observer No 230, January 2002; Updated April 2002

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