C E N T R E F O R T A X P O L I C Y A N D A D M I N I S T R A T I O N 1

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C E N T R E F O R T A X P O L I C Y A N D A D M I N I S T R A T I O N

PROMOTING INTERNTIONAL PROMOTING INTERNTIONAL TAX CO-OPERATIONTAX CO-OPERATION Cercle d’Economia d’Andorra

2 June 2003Presentation by:

Jeffrey Owens and Donal GodfreyOECD’s Centre on Tax Policy and Administration

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Overview

What is OECD?

Why it is interested in Harmful Tax Practices

What are these practices?

What has the OECD response been?

Implications for Andorra

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Limited membership but a global reach Intra governmental Wide range of issues

The OECD:

United StatesCanadaMexico

Iceland

AustraliaNew Zealand

Austria Greece PolandBelgium Hungary PortugalCzech Rep Ireland Slovak RepDenmark Italy SpainFinland Luxembourg SwedenFrance Netherlands SwitzerlandGermany Norway Turkey United Kingdom

JapanKorea

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The OECD’s Work

Various committees covering almost all aspects of governmental action (except defense and culture)

Policy formulationProduces:

– statistics– reports– recommendations– few “hard” rules (Bribery Convention)– many “soft” rules (Model Tax Convention)

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Committee on Fiscal Affairs(CFA)

Main Tax Policy Body of the OECD

Mandate covers:

– International and Domestic Issues

– Direct and Indirect taxes

– Tax Policy and Tax Administration

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OECD’s Work in Taxation

OECD develops guidelines in areas where international co-ordination is desirable to foster free trade and effective tax administration:– tax treaties (OECD Model Tax Convention)– transfer pricing– e-commerce– exchange of information– harmful tax practices

Guidelines developed through expert committees and consensus approach

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Current Approach

Globalisation has required a refocus of OECD’s tax work:– global solutions to tax problems

– expansion of dialogue to include:

• Non-OECD economies

• business community

– expanded work programme

• includes harmful tax practices

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Some Effects of Globalisation

Reduction of barriers to trade and

investment

Advances in communications technology

New knowledge-based economy

Trade is getting lighter

Increased competition between governments

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Implications for national tax systems

The benefits– Reducing tax rates and broadening the tax base– Governments search for new efficiencies/better

service– A re-assessment of fiscal climate for investment

The challenges – Global Business and National Tax Systems must

co-exist– Difficulties in taxing income from financial activities – New opportunities for international tax evasion

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Tax Competition not always harmful

Increased Competition – an inevitable effect

of globalization

– At issue is the distinction between fair competition and harmful tax practices

– e.g. no direct taxes is a legitimate policy choice but is bank secrecy ?

– Harmonisation of taxes is out - it’s a completely different issue

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Fair Versus Harmful Competition

Competition can be fierce and fair

The high road– Compete on overall levels of tax, balance of

taxes, general structures of tax rates– Preferential Regimes that are non-discriminatory

and transparent

The low road– Compete with measures that lack transparency

and secrecy provisions

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OECD Objectives

What does the OECD seek ?– Sufficient transparency for tax audits

accounting, ownership and bank information should be available

– Effective Exchange of Information

A New Era in Co-operation?

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1998 Report– created Forum on Harmful Tax Practices– established criteria for HTP

3 aspects– OECD member country regimes– tax havens– other countries

2000 Report on Access to Bank Information– Ideally all OECD Member countries should permit

tax authorities to have access to bank information for all tax purposes

The OECD Response

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32 offshore jurisdictions committed to trans-parency and effective exchange of information

Aruba Cyprus Neth. Antilles US Virgin IsAntigua Dominica Niue VanuatuAnguilla Guernsey PanamaBahamas Grenada SamoaBahrain Gibraltar San MarinoBelize Isle of Man SeychellesBermuda Jersey St. Kitts & NevisBritish V.I Malta St. Vincent Cayman Is Mauritius St. Lucia Cooks Islands Montserrat Turks & Caicos

State of Play: Tax Haven Work

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Only 6 offshore jurisdictions now listed as un-cooperative tax havens

Andorra Marshall Islands

Liechtenstein Nauru

Liberia

Monaco

State of Play : Tax Haven Work

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State of Play: Tax Haven work

Jurisdictions have engaged constructively with OECD

32 jurisdictions are our participating partners in further developing standards.– Model Agreement on Effective Exchange of

Information– Accounts Requirement

Change since 1998 has been remarkable

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47 OECD preferential regimes identified as potentially harmful

July 2003 to abolish or modify – Many have already done so

Identification of Harmful Preferential regimes in OECD

State of Play : Member country work

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September 2001 Global Forum Meeting

Bilateral meetings with China, Macao, Hong Kong, Singapore, Malaysia, Uruguay, Chile, Argentina, Brazil

OECD will focus efforts during next 12 months on the major financial services centres

Association of non-OECD countries

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Improving Access to Bank Information

The 2000 Report set out a series of measures to improve access to bank information.

Considerable progress has been made.

– Abolition of anonymous accounts Yes

– Abolition of Domestic Tax Interest Yes

– Improved access for criminal tax purposes Yes

– Improved access for civil tax purposes Con’t

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EU Savings Directive

EUSD: – Has not helped OECD efforts to promote global

standards of tax co-operation– Has raised level playing field issues

BUT assuming its agreed:– Interim solution only, ultimate objective is

exchange of information– Will not prevent OECD pursuing its agenda for

exchange on request in context of HTP project

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Increased International Cooperation– Offshore and onshore financial centers are

engaging in effective exchange of information.– Harmful Tax Practices eliminated from OECD area.– Non-member countries fully engaged.

Dividing world between co-operative and uncooperative jurisdictions

Fair/Transparent competition becomes the norm.

The end Game : 2005

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Implications for Andorra

Traditional European Offshore Model is evolving

Pressure to improve transparency and exchange of information for tax purposes will increase

Going forward, to be successful, OFCs will not able to rely on secrecy

Documents

C E N T R E F O R T A X P O L I C Y A N D A D M I N I S T R A T I O N 1