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The tax havens the
OECD forgot?

Harmful tax competition? Harmful to whom? Learn about the real agenda behind OECD's blacklists of offshore tax havens.

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with Michael Isaacson

The Organisation for Economic Co-operation and Development (OECD), founded in 1961 to stimulate global economic progress by liberalising free trade and the movement of capital, in 1971 established a Committee on Fiscal Affairs.

Whilst some of the work of the Committee has brought positive results, notably the establishment of double-tax treaties between nations, most will associate the Fiscal Affairs Committee with the recent crusade against tax havens.

Defying both common sense and the opinion of many leading economists, the Committee has argued since 1998 that tax competition -- that is competition amongst sovereign nation for revenue through offering tax breaks to international investors -- is "harmful" to the global economy.

Lester Bird, the Prime Minister of Antigua and Barbuda, one of the tax havens later viciously targeted by the OECD, remarked in 2001:

"The (OECD's) scheme claims that competition in taxation is harmful. In making this claim, it shows itself in favour of the heavy hand of government. For, the OECD is the champion of competition in every other field -- in trade, in telecommunications, in ideas -- but not in taxation."

Indeed. Global tax competition, just like any other competition, is a positive force. It directs tax rates downward, helping taxpayers and forcing governments to become more efficient. It promotes economic growth.

Even though the the OECD would like to have us think otherwise, its real motives are not too hard to work out:


Back in 1998, at the dawn of the "Harmful Tax Competition" campaign, the OECD's Fiscal Affairs Committee noted:

"In 1998, OECD governments collected almost US$ 8 trillion in taxes: the equivalent of 37.2 percent of the aggregate GDP of their economies and the highest figure recorded since revenue data began being collected by the OECD."

The Committee also admitted:

"There has been a continuing trend towards higher tax levels: from 29 percent of GDP in 1970, to 33 percent in 1980, to 36 percent in 1990 and more than 37 percent in 1998."

... And Fear

The origins of the OECD's "Harmful Tax Competition" scheme can be traced back to the centre-left coalition of European governments that believe in the notion of high taxation. Aware of the political unpopularity of domestic tax hikes, they have simply sought to spread their tax net outside of their national borders. They have set their sights on offshore tax havens that they blame for "unfairly eroding their tax bases".

Harmful tax havens

The OECD launched its campaign in May 1998 with the release of its infamous "Harmful Tax Competition" report which, amongst others, sought to define what constituted a "harmful" tax haven. The OECD would then use the criteria it defined to identify countries with undesirable tax policies.

Three years later, in June 2000, the OECD was talking of "the spread of tax havens and other harmful tax practices" as if it were a disease that threatened the globe when it released its first verdict and published a list of 35 low-tax havens.

The following tax havens were initially blacklisted:

Antigua and Barbuda
The Bahamas
British Virgin Islands
Cook Islands
Isle of Man
The Maldives
The Marshall Islands
Netherlands Antilles
St Lucia
St Kitts & Nevis
St Vincent and the Grenadines
Turks & Caicos
US Virgin Islands

Bermuda, Cayman Islands, Cyprus, Malta, Mauritius and San Marino were also identified as tax havens by the OECD but were spared the "shame" of appearing on the blacklist by signing advance commitment letters promising to reform their tax regimes.

According to an OECD press release of that time,

"(The tax havens blacklisted) are being given the opportunity over the next 12 months to determine whether or not they wish to work with OECD to eliminate harmful features of their regimes by the end of 2005. ... OECD is developing a general framework within which [OECD] Member countries can implement a common approach to tackling harmful tax competition. This will include defensive measures that countries will consider applying to uncooperative tax havens that choose not to commit to eliminate harmful tax practices."

Since updated and re-published depending on the level of "co-operation" individual tax havens exhibit, the OECD's blacklist "has become a tool to promote change" according to Gabriel Makhlouf, chairman of the OECD Committee for Fiscal Affairs. "We have found that many of the jurisdictions that have come under scrutiny are very interested in changing," he continued.

No wonder. The OECD went after the small and the weak, ignoring the fact that many OECD-member countries posses legislation that, by the OECD's own criteria, make them equally "guilty".


Lobbying for US support on behalf of Caribbean tax havens, Prime Minister Bird of Antigua commented:

"By the criteria set by the OECD, the United States is now guilty of practicing harmful tax competition. One case in point is that banks in the US are the depositories for hundreds of billions of dollars from non-residents whose interest income is not taxed. Resident interest income is taxed at 30%. This "no tax" policy of the US has kept this large sum of money in the banking system since 1921."

Mr Bird continued:

"I will not labour over the process by which the OECD arrived at the jurisdictions that it has publicly named as tax havens and threatened with sanctions. Suffice to say that the OECD has itself admitted that the process is flawed. It was unilateral and arbitrary and its objectives fly in the face of international law and internationally accepted norms and practices."

We need not labour over it either. Instead, let us visit some of the tax havens that the OECD conveniently "forgot" about, for one reason or another.

Forgotten tax havens?

All of the following countries indulge in "harmful tax practices" under the criteria set by the OECD:

OECD Members
United States
United Kingdom
Madeira, Portugal
Canary Islands, Spain
Costa Rica
Labuan, Malaysia

Our virtual tour does not pretend to be a complete guide to all the non-traditional tax havens of the world; rather, we intend to offer examples of the OECD's hypocrisy, as well as to provide a few initial pointers in the right direction for those wishing to conduct business from the OECD spotlight.


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