Blacklisting threats persist as tax havens still blamed

Cayman and other offshore financial centres are not out of the onshore countries 'bad books' just yet. The latest meeting of the G20 has revealed more pressure to come on tax havens and yet more potential black lists. According to the communiqué from the Pittsburg round, the G20 countries will be continuing to fight non-cooperative jurisdictions (NCJs). Although it is widely acknowledged that offshore financial centres had little to do with the recent global economic melt down, the G20 members have agreed to use countermeasures against tax havens from March 2010.

However, the OECD has warned the G20 nations that it maybe their own tax regimes that need addressing first.

The G20 members have said they are committed to maintaining the momentum in dealing with tax havens and to deliver an effective programme of peer review. “The main focus of the Forum’s work will be to improve tax transparency and exchange of information so that countries can fully enforce their tax laws to protect their tax base. We stand ready to use countermeasures against tax havens from March 2010,” the communiqué stated.

It also indicated that it would require the Financial Action Task Force (FATF) to issue a public list of high risk jurisdictions by February 2010. “We call on the FSB to report progress to address NCJs with regards to international cooperation and information exchange in November 2009 and to initiate a peer review process by February 2010.

However, the Organisation for Economic Cooperation and Development (OECD) has warned the G20 nations that dealing with the symptoms of the problem and not the real causes can cause more harm than good. Speaking to AFP, the OECD said reforming national tax regimes in leading countries should be where the focus is because onshore tax incentives encourage the legal use of offshore entities and complex instruments to take best advantage of onshore tax allowances.

The OECD said that the causes of the global economic crisis lay with policymakers in many fields and in many countries.

Speaking to Reuters in the wake of the summit, Leader of Government Business Mckeeva Bush said the campaign against offshore centres was misdirected. "It's not fair," said Bush. He said that the anti-tax haven "finger pointing" by the world's richest and most powerful governments is hypocritical and seeks to shift blame away from their own failed policies and lax regulation. "It's the fault of the onshore centres who taxed their own people ... money is running away from them now," Bush said.

An OECD report "Reform and exit strategies" implies that the main causes of the global crisis were borrowing by governments and unduly low interest rates by central banks. Official distortion of exchange rates then prevented markets from absorbing the global trade and savings imbalances which resulted. In the West, a social bias towards "easy money policies" led to "excess liquidity, asset bubbles and leverage."

Another cause was the so-called "American dream" vote by Congress to push out zero asset-backed home loans to low income households. "Banks respond to the signals they are given," the report suggests. It also points to the risk that mortgage tax relief, of the type associated with subprime loans, could result in households falling into excessive debt.

Author of the report, Adrian Blundell-Wignall, says a cause of the crisis, given little or no public attention, was national tax systems in leading economies. These unduly favour corporate risk and debt leverage and were the main force behind much-criticised structured financial instruments. But the issue of domestic tax reform "needs to be on the long-run agenda," Blundell-Wignall said.

He also cites a degree of incompetence in bank boardrooms, the pooling of businesses within financial groups which ensured contagion if part of the group collapsed, and unduly complex or overlapping rules and supervision.

Source: Cayman News Service