Nexia ETG Meeting Milan 2 October 2009 Harmful Tax Practices Kevin Renshaw

Harmful Tax Practices Is a preferential tax regime harmful? In 1998 OECD report identified the following practices: Ring fencing from the domestic regime Lack of transparency Lack of effective exchange of information But where was the level playing field? Is the form of agreement model appropriate?

Harmful Tax Practices What is a harmful tax practice? Not formally defined OECD and G20 refer to: –Illicit use of financial systems –Lack of transparency Are these really tax practices?

History Key dates Harmful Tax Practices Project launched by OECD in 1996 Subsequent meetings and progress reports 2002 – Model Agreement on Exchange of Information Most recent report issued 2 April 2009 following G20 meeting Issue of White List of cooperating countries in 2009

Current Position OECD Harmful Tax Practices project continues with the involvement of 84 countries G20 has identified harmful tax practices as a key priority UK and US governments promising strong measures to tackle offshore centres European governments firmly committed to change

Current Position Isle of Man assists Belgium in reaching OECD standards and being upgraded to the white list! Austria signs agreements with Andorra and Gibraltar and Switzerland signs agreement with Qatar to escape grey list! OECD confirm 0% corporate tax regimes not harmful Has the debate moved to the removal of banking secrecy?

Harmful Tax Practices or Offshore Financial Centres? OFC’s inextricably linked to harmful tax practices by OECD and G20, but… Are OFC’s used primarily for tax evasion? Historically, perhaps Current use of OFC’s has many commercial reasons Lack of transparency/banking secrecy is now practiced by the small minority What about harmful practices onshore?

Why use OFC’s if not to avoid tax? Flexible corporate law Corporate structuring without paying additional taxes Access to new markets Allows companies to pay tax where profits earned Certainty of legislation

Is it really a problem? Hard to quantify financial impact, but: Estimates of assets held offshore by individuals ranges from $1.7 to $11.7 trillion Investigation into offshore banks recovered €1.5bn for Ireland UK disclosure regime recovered £500m US estimates $100bn of tax being evaded through assets held offshore

What does the future hold? Continued focus from OECD/G20 Harsh US legislation can be expected White list published in 2009 –further sanctions on blacklisted countries? –further restrictions to remain on white list? Defensive measures or recognition

What does the future hold? Is it enough to have ‘X’ number of agreements? It is likely the ability to demonstrate a system to deliver exchange of information if requested will be crucial! Change in focus from Offshore Financial Centres to International Financial Centres

What about other harmful tax practices? Tax rules which: –Distort the free market –Discriminate against certain taxpayers –Provide a lack of certainty (judicial interference) –Constantly change –Result in taxation other than where the profits are earned –Are poorly drafted and interpreted for political and emotional reasons

Do we need the Harmful Tax Practices project? If profits are being “shifted” offshore, why not tackle this through OECD transfer pricing rules? –Do TP rules need strengthening? –If TP rules cannot be used is it really tax abuse? Is it tax avoidance or simply tax deferral? Could the same result be achieved through changes to domestic legislation? Necessary or politically expedient?

Conclusion Standing still is not an option OFC’s will need to change However, so will traditional jurisdictions Governments must take global view, not simply view domestic tax situation Pure tax planning unlikely to have a long term future – commercially driven structuring will be increasingly important We have an obligation as advisors to act responsibly and preserve planning opportunities

Who to contact Kevin Renshaw – Associate Tax Director Telephone: +44 (0) Mobile: +44 (0) This presentation is for general guidance only. Action should not be taken without obtaining independent advice. Abacus Trust Company Limited is licensed by the Isle of Man Financial Supervision as a Corporate and Trust Service Provider. Abacus Financial Services Limited is licensed by the Isle of Man Financial Supervision Commission to conduct Investment Business.