EUROPE THREATENING OECD’S PLANS TO SWAP TAX INFORMATION

The decision of the European Union (EU) heads of government to postpone adoption of their savings tax directive does not lift the threat posed to the Organization of Economic Cooperation and Development’s (OECD’s) own initiative to increase the transparency of financial transactions.

Rather, the proposed EU directive ignores an OECD commitment not to favour its own members over small states and the International Trade and Investment Organization (ITIO) believes the OECD should call an urgent meeting to discuss the implications. “As matters stand, the OECD’s ‘harmful tax competition’ project appears compromised and its future in doubt,” said ITIO Chairman Mr. Glenroy A. Forbes, in a March 19th, 2003 letter to OECD Secretary General Mr. Don Johnston. Mr. Forbes is also Financial Secretary of the British Virgin Islands.

“The implementation of the savings tax directive currently under discussion by EU countries, all of whom are OECD members, may violate the OECD’s commitment to a level playing field,” explained Mr. Forbes. “The EU action also represents a major challenge to the OECD’s own principles of transparency and exchange of information.” The ITIO Chairman is calling for an urgent meeting of the OECD’s Global Tax Forum to discuss the impact of the EU directive. The OECD has already conceded that the EU directive may undermine its own tax project, yet has not called a meeting of the Forum to review the situation.

The Forum comprises OECD members and the 31 small and developing countries that have committed to working with the OECD to develop new international standards for transparency and effective exchange of information.

The governments of Antigua & Barbuda, the Cayman Islands, Panama and St. Vincent and the Grenadines, along with other heads of government in CARICOM, have stated they will not participate in any further work of the OECD Global Tax Forum until there is a meeting to discuss the issue of a level playing field.

“Adoption of the EU directive has been delayed. This provides a breathing space for an OECD meeting to take place,” Mr. Forbes later added.

Last year, by promising a level playing field (non-discrimination) between members (including all EU countries) and non-members, the OECD encouraged numerous small countries, including most ITIO members, to commit to exchanging tax information on request from 2006.

However, according to a release from the BVI Finance Centre, the proposed EU savings tax directive flies in the face of the OECD promise by giving four OECD members – Austria, Belgium, Luxembourg and Switzerland – a competitive advantage over non-OECD countries, by allowing them to defer exchanging information until 2011 or later. The ITIO, which was founded in March 2001, represents 16 small and developing states across Europe, the Caribbean, Pacific, Latin America and Asia. It works for a level playing field in the trade in services, particularly in the development and implementation of new regulatory standards.

Members are Anguilla, Antigua/Barbuda, Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Cook Islands, Isle of Man, Labuan (Malaysia), Panama, St. Kitts & Nevis, St. Lucia, St. Vincent & the Grenadines, Turks & Caicos and Vanuatu. The Commonwealth Secretariat, Pacific Islands Forum Secretariat, CARICOM Secretariat, Caribbean Development Bank and Eastern Caribbean Central Bank have observer status.

Mr. Forbes’ letter to Mr. Johnston comes following the 9th Meeting of the International Trade and Investment Organization in Panama City on March 15th. At that meeting, two more small states joined the ITIO, The Isle of Man and St. Vincent and the Grenadines. This is seen as a sign of small states’ growing solidarity in the face of discrimination by large, developed countries.