OECD Publishes Blacklist Of Tax Havens

OECD Publishes Blacklist Of Tax Havens

July 01, 2000

The Organization for Economic Cooperation and Development, or OECD, published a list of 35 tax havens at the end of June. Companies that invest through these tax havens risk sanctions starting in August 2001.

The list includes the following countries:

Bahamas

Belize

British Virgin Islands

Jersey

Netherlands Antilles

Panama

Noticeably absent from the list are the following jurisdictions used frequently by the project finance community: Cayman Islands, Bermuda, Mauritius, Cyprus, the Netherlands and Luxembourg. All except the Netherlands and Luxembourg were excluded from the list after they committed to the OECD that they would take steps to eliminate harmful tax practices by the end of 2005. The Netherlands and Luxembourg did not meet the criteria for tax havens.

The Cayman Islands escaped the listing by pledging to begin sharing criminal tax information with OECD countries after 2003 and to share civil tax information after 2005.

The OECD is an organization of developed countries based in Paris. The United States and Canada, along with European countries, Australia, New Zealand and Japan, are members.

Sanctions have been delayed for a year to give the tax havens a chance to cooperate. The OECD will publish a list of “uncooperative tax havens” in July 2001. Tax havens can escape being included on this list by pledging to share tax information. The OECD will work in the meantime to come up with a list of sanctions it recommends that OECD member countries take against companies investing through uncooperative tax havens. These will probably include denial of US tax deferral (in the case of US companies) and foreign tax credits. Countries from whom earnings are distributed to tax havens will probably also increase withholding taxes on such earnings.

The sanctions will require action by individual member countries. The Clinton administration proposed a set of sanctions similar to the OECD list to Congress in the budget this year, but Congress looks unlikely this year to take any action.

The OECD report also lists tax benefits in developed countries that it believes promote harmful tax competition. The only US item on this list is foreign sales corporations, or FSCs. None of the items listed for other countries is widely used in the project finance community. OECD countries have committed to eliminate the harmful tax practices by April 2003.

The OECD said it was not tackling holding company regimes in such places as Denmark, Ireland, Holland and Luxembourg in this report, but expects to report further on them by early 2001

by Keith Martin, in Washington