The Caribbean, the OECD and the empty blacklist
Offshore taxation demystified (Part 1)
After all the hype about tax havens and offshore banking secrecy, the black list is no more. Gone forever or just the calm before the Caribbean storm?
The infamous blacklist of uncooperative tax havens, maintained by the Organisation for Economic Cooperation and Development (OECD) and dominated by Caribbean jurisdictions, is empty now. In an increasingly borderless world, there seems to be no rogue tax regimes anymore. But this is just a temporary silence and definitely not forever.
Therefore, it is interesting to know which Caribbean countries will find themselves on this list shortly and what effect it has if you live and invest in a blacklisted country. Practical aspects of the past, the present, and the future are discussed in the following.
A Short History of the Black List
Founded in the post-second world war era, it took the OECD more than 50 years before it listed 15 jurisdictions as tax havens according to criteria it had established by itself. This first list, dated from the year 2000, covered countries from the Bermudas over to the Cayman Islands, and on to Saint Vincent and the Grenadines. OECD said it had investigated 31 countries before drawing up the list.
In 2000, an OECD report named and shamed 47 “preferential tax regimes“ and 35 tax havens. These listed countries have been threatened by the OECD with “defensive measures” if they fail to “eliminate harmful features of their regimes.” In the following years, most of the listed countries did make commitments to transparency and exchange of information. Among these are Barbados and the US Virgin Islands.
Seven jurisdictions (Andorra, Liechtenstein, Liberia, Monaco, Marshall Islands, Nauru and Vanuatu) resisted all requests and threats – this did not include any Caribbean jurisdiction. In April 2002, these Seven Samurais were formally identified by the OECD as uncooperative, and as a result, the list of seven went black.
This was called the high-water mark of the anti-offshore initiative. However, things were going to get worse before they got better if they even get better at all.
All of these jurisdictions have subsequently been involved in negotiations to make some or full commitments. Costa Rica has been one of the last jurisdictions that escaped the list. Based on these statements, the OECD decided in May 2009 to remove all seven from the blacklist.
<THE BLACKLIST OF UNCOOPERATIVE TAX HAVENS IS CURRENTLY EMPTY. YOU MAY NOW CALL IT THE WORLD’S SHORTEST BLACK LIST.>
As a result, the blacklist of uncooperative tax havens is currently empty. You may now call it the world‘s shortest black list. All 84 jurisdictions on the radar screen of the OECD agreed to implement the standard.
A greylist (countries that supposedly lack fiscal transparency but have committed to change) includes Anguilla, Antigua and Barbuda, Aruba, Bahamas, Bermuda, British Virgin Islands, Cayman Islands, Dominica, Montserrat, Netherlands Antilles, St. Kitts and Nevis St. Lucia, Saint Vincent and the Grenadines, as well as the Turks and Caicos Islands.
Not officially disclosed by the OECD, there is even a white list. Territories like Delaware and Hong Kong, with an overpowering empire in the background, can disregard the OECD principles without the threat of being added to the blacklist. The OECD will not quarrel with the big boys. Any Caribbean location, even the Cayman Isles, will not benefit from this privilege.
Who Will Qualify for the Black List
The low tax or no tax countries will be eligible as uncooperative from the OECD point of view if they do not meet specific standards of transparency and effective exchange of information.
The OECD regularly updates which tax havens and other jurisdictions implemented the standards and which are in delay, although they agreed to the standards. The latter ones will be good candidates for a new blacklist.
Therefore, it is of great interest how these so-called “internationally agreed tax standards” are defined. Based on the publications of the OECD a very broad and aggressive definition is used. It is the “full exchange of information on request in all tax matters without regard to a domestic tax interest requirement or bank secrecy for tax purposes.“
The interpretation of this definition will definitely leave a gray area. As a rule of thumb, the OECD expects each country to sign at least twelve information exchange agreements with non-tax-havens and its willingness to sign even more in the future.
Tax information exchange is in many cases implemented in the double tax treaties (e.g., ”the competent authorities of the contracting states shall exchange such information as is necessary for carrying out the provisions of this treaty or of the domestic laws of the contracting states.“) However, they can be agreed separately or in a multilateral contract as well.
The exchange of information as requested by the OECD standards will not cover only individuals but also companies and trusts. As a result, its shareholders and beneficial owners will have to be disclosed as well.
Everything anticipated to be relevant has to be disclosed. Although the OECD stresses its respect for taxpayers‘ rights, this concept is weakly implemented. There will be no effective protection and defense against fishing expeditions of high-tax jurisdictions abroad in the Caribbean.
What the Future Will Bring
The OECD published in April 2002 a model agreement on an exchange of information on tax matters. 116 clauses – included in 16 articles – cover, above all, the exchange of information upon request, the possibility of declining a request, confidentiality and costs, as well as procedural questions. A number of bilateral agreements have been based on this draft.
Jurisdictions that accept the numbers game of at least twelve signed tax information exchange agreements might have a good start to sign bilateral agreements with seven Nordic economies – Denmark, the Faroe Islands, Finland, Greenland, Iceland, Norway, and Sweden – on the exchange of information for tax purposes. Seven of twelve is half the battle.
Living Your Life in a Blacklisted Country
There is no doubt that the OECD will not rest or settle before getting the full commitments of the gray listed jurisdictions. Instead, they will monitor to achieve a rapid and effective implementation of the standard. This will include requests for legislative changes and the negotiation of specific bilateral agreements.
The Bahamas, the Cayman Islands, St. Kitts and Nevis, and some Pacific islands like Samoa, may be the hottest candidates for a new blacklist. They are already in the public focus of the European Union and may be impeached first for not meeting their pledge to fight tax evasion. On the other side, Aruba, Bermuda, and Netherlands Antilles are praised for making progress in negotiating the exchange of information agreements.