By Vanessa Houlder
Published: March 13 2009 18:55 | Last updated: March 13 2009 18:55
A cascade of concessions on tax secrecy by some of the world's leading private wealth centres has been hailed as a breakthrough in a decade-long international assault on evasion.
Gordon Brown, British prime minister, talked on Friday about "the beginning of the end of tax havens".
The pursuit of tax evaders by foreign countries will be made easier by the promises of greater co-operation by Switzerland, Austria, Luxembourg, Hong Kong, Singapore, Liechtenstein, Andorra and others. They have bowed to pressure by adopting international standards on transparency, although insisting they will continue to protect investors' privacy.
Richard Hay of Stikeman Elliott, an international law firm, said: "Switzerland's capitulation to the OECD is a game-changer."
The anti-tax haven initiative led by the Organisation for Economic Co-operation and Development has been stymied by charges of hypocrisy. The tiny islands and states accused of harbouring undeclared money deflected attacks by pointing out that similar charges could be levelled at OECD member states such as Switzerland as well as Asian financial centres such as Hong Kong and Singapore.
Concessions by big players such as Switzerland and Singapore rip that defence away from the remaining offshore centres such as Panama that cling to secrecy. They also dilute the threat that the closure of one haven will simply divert money to another.
The moves pave the way for intense pressure to be applied to the remaining hold-outs. Angel Gurría, secretary-general of the OECD, noted that "many jurisdictions still maintain arrangements that prevent them from assisting foreign authorities in tax investigations". Offshore centres reluctant to co-operate with foreign tax authorities face the threat of being "blacklisted" at next month's London summit. Sanctions ranging from higher withholding taxes to restricting banking transactions could be applied.
But critics of tax havens are sceptical about the OECD's initiative. Foreign tax authorities wanting to take advantage of tax information exchange agreements need to supply evidence of their suspicions. If they have no "smoking gun", they will be unable to extract information. More-over, the bilateral deals on information exchange rarely help developing countries chase down evaders. Oxfam, the charity, said this week that losses from offshore evasion may cost developing countries more than they receive in foreign aid.
Bankers and lawyers in the finance centres affected by this month's announcements have been keen to emphasise the limits to the concessions. Jean Schaffner, a Luxembourg partner of Allen & Overy, said the state's proposals were a "good compromise between the need to co-operate with foreign tax administrations and the desire to preserve privacy". Fears that foreign authorities could make "blanket requests" for information were not realised.
Moreover the crackdown on evasion does not tackle complex issues concerning corporate use of offshore centres, which companies often favour for their tax-neutrality and legal structure. The US administration has promised action against avoidance by US companies using tax havens.
Offshore centres are also anxiously eyeing anti-tax haven bills introduced in both US Houses of Congress last week, which were endorsed by Timothy Geithner, Treasury secretary, who promised "a much more ambitious effort to deal with offshore tax havens".
The legislation listed 34 "secrecy jurisdictions", although there was provision for jurisdictions to be removed if they have "information exchange practices that effectively overcome those secrecy barriers".
Offshore centres are also braced for a new attempt by the European Commission to close loopholes in the Savings Directive, its 2005 anti-evasion legislation. The Commission is keen to extend its geographic reach to ensure that evaders do not simply shift their money to centres such as Hong Kong, Singapore and Dubai.
Some offshore centres said they hoped that the political furore over tax havens before next month's G20 meeting might die down. Geoff Cook of Jersey Finance, which represents Jersey's finance industry said the concessions: "will defuse it to a large degree." But some influential politicians were guarded about the impact of the concessions.
Christine Lagarde, French finance minister, warned that "the devil is in the detail". She said: "We must go all the way and see if banking secrecy is sufficiently lifted."
Gordon Brown, British prime minister, talked on Friday about "the beginning of the end of tax havens".
The pursuit of tax evaders by foreign countries will be made easier by the promises of greater co-operation by Switzerland, Austria, Luxembourg, Hong Kong, Singapore, Liechtenstein, Andorra and others. They have bowed to pressure by adopting international standards on transparency, although insisting they will continue to protect investors' privacy.
Richard Hay of Stikeman Elliott, an international law firm, said: "Switzerland's capitulation to the OECD is a game-changer."
The anti-tax haven initiative led by the Organisation for Economic Co-operation and Development has been stymied by charges of hypocrisy. The tiny islands and states accused of harbouring undeclared money deflected attacks by pointing out that similar charges could be levelled at OECD member states such as Switzerland as well as Asian financial centres such as Hong Kong and Singapore.
Concessions by big players such as Switzerland and Singapore rip that defence away from the remaining offshore centres such as Panama that cling to secrecy. They also dilute the threat that the closure of one haven will simply divert money to another.
The moves pave the way for intense pressure to be applied to the remaining hold-outs. Angel Gurría, secretary-general of the OECD, noted that "many jurisdictions still maintain arrangements that prevent them from assisting foreign authorities in tax investigations". Offshore centres reluctant to co-operate with foreign tax authorities face the threat of being "blacklisted" at next month's London summit. Sanctions ranging from higher withholding taxes to restricting banking transactions could be applied.
But critics of tax havens are sceptical about the OECD's initiative. Foreign tax authorities wanting to take advantage of tax information exchange agreements need to supply evidence of their suspicions. If they have no "smoking gun", they will be unable to extract information. More-over, the bilateral deals on information exchange rarely help developing countries chase down evaders. Oxfam, the charity, said this week that losses from offshore evasion may cost developing countries more than they receive in foreign aid.
Bankers and lawyers in the finance centres affected by this month's announcements have been keen to emphasise the limits to the concessions. Jean Schaffner, a Luxembourg partner of Allen & Overy, said the state's proposals were a "good compromise between the need to co-operate with foreign tax administrations and the desire to preserve privacy". Fears that foreign authorities could make "blanket requests" for information were not realised.
Moreover the crackdown on evasion does not tackle complex issues concerning corporate use of offshore centres, which companies often favour for their tax-neutrality and legal structure. The US administration has promised action against avoidance by US companies using tax havens.
Offshore centres are also anxiously eyeing anti-tax haven bills introduced in both US Houses of Congress last week, which were endorsed by Timothy Geithner, Treasury secretary, who promised "a much more ambitious effort to deal with offshore tax havens".
The legislation listed 34 "secrecy jurisdictions", although there was provision for jurisdictions to be removed if they have "information exchange practices that effectively overcome those secrecy barriers".
Offshore centres are also braced for a new attempt by the European Commission to close loopholes in the Savings Directive, its 2005 anti-evasion legislation. The Commission is keen to extend its geographic reach to ensure that evaders do not simply shift their money to centres such as Hong Kong, Singapore and Dubai.
Some offshore centres said they hoped that the political furore over tax havens before next month's G20 meeting might die down. Geoff Cook of Jersey Finance, which represents Jersey's finance industry said the concessions: "will defuse it to a large degree." But some influential politicians were guarded about the impact of the concessions.
Christine Lagarde, French finance minister, warned that "the devil is in the detail". She said: "We must go all the way and see if banking secrecy is sufficiently lifted."
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