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

2 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

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 3  Limited membership but a global reach  Intra governmental  Wide range of issues The OECD: United States Canada Mexico Iceland Australia New Zealand AustriaGreece Poland BelgiumHungary Portugal Czech Rep Ireland Slovak Rep DenmarkItaly Spain FinlandLuxembourg Sweden FranceNetherlands Switzerland GermanyNorway Turkey United Kingdom Japan Korea

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 4 The OECD’s Work  Various committees covering almost all aspects of governmental action (except defense and culture)  Policy formulation  Produces: –statistics –reports –recommendations –few “hard” rules (Bribery Convention) –many “soft” rules (Model Tax Convention)

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 5 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

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 6 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

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 7 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

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 8 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

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 9 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

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 10 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

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 11 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

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 12 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?

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 13  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

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 14  32 offshore jurisdictions committed to trans- parency and effective exchange of information Aruba Cyprus Neth. Antilles US Virgin Is Antigua Dominica NiueVanuatu Anguilla Guernsey Panama Bahamas Grenada Samoa Bahrain Gibraltar San Marino Belize Isle of Man Seychelles Bermuda Jersey St. Kitts & Nevis British V.I Malta St. Vincent Cayman Is Mauritius St. Lucia Cooks Islands Montserrat Turks & Caicos State of Play: Tax Haven Work

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 15  Only 6 offshore jurisdictions now listed as un-cooperative tax havens AndorraMarshall Islands LiechtensteinNauru Liberia Monaco State of Play : Tax Haven Work

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 16 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

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 17  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

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 18  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

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 19 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

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 20 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

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 21  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

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 22 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