Tax havens drain poor nations, OECD says

November 29, 2008
Singapore Democrats

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Lisa Jucca
Reuters

Offshore centres that attract untaxed wealth from developing countries are depriving poorer nations of revenues they need to weather the global economic crisis, a top OECD official said on Friday.

Governments in advanced economies such as the United States and the European Union are toughening their stance against tax dodgers in a bid to catch as much taxable income as possible in their net.

But developing countries with less sophisticated tax authorities and few resources are finding that task much harder.

“Tax havens have a bigger impact on developing countries than on developed countries,” Jeffrey Owens, director of the Centre for Tax Policy Administration at the Organisation for Economic Cooperation and Development, told Reuters.

“There is an enormous drainage of revenues to tax havens. This is equivalent to around 7 to 8 percent of gross domestic product for the African continent and a multiple of the aid it gets from developed countries.”

Owens said issues surrounding tax collection had been rising on the agenda of world leaders and would be tackled at a United Nations gathering this weekend in Doha on development aid.

He said a parallel push to reduce barriers to trade through the Doha world trade round — which has no relationship to the weekend U.N. meeting in the Qatari capital — also stood to deprive poorer countries of key tariff revenues.

While cutting import duties is desirable on a global basis, because it would pry open markets to cross-border commerce, Owens said the easy-to-collect tariffs now constitute as much as half of many poorer countries’ entire tax collection.

“It’s far easier to levy a tariff than to collect value added tax. You just need a guy at the border,” he said. “But as more and more countries join the World Trade Organisation they join in the commitment to reduce tariffs.”

There are 153 members involved in the WTO’s Doha round talks, which would cut barriers to trade in both goods and services around the world. World leaders are pushing for a breakthrough in those negotiations as early as next month.

Tax Haven Transparency

The OECD has been spearheading a decade-long campaign against tax havens and has engaged with offshore centres to ensure those countries implement transparency standards and exchange information with other jurisdictions.

Only Liechtenstein, Andorra and Monaco are on its “black list” of uncooperative financial centres that have failed to make the political commitment to new standards.

But Owens said another group had not yet fully implemented the standards they had signed up for, including Cayman Islands, Samoa, Panama, and the Bahamas.

Only seven centres — Aruba, the Dutch Antilles, the British Virgin Islands, Bermuda, the Isle of Man, Guernsey and Jersey — were fully compliant with OECD transparency standards.

And other centres, notably Singapore, had made no political commitment of any sort and were benefiting from being outside the reach of a European Union bill for the taxation of interest from non-resident savings Switzerland has signed up to, he said.

All offshore centres are likely to face more pressure from industrialised nations as the growing financial crisis forces governments to seek more sources of cash.

An attempt by the EU to extend its savings directive to non-EU jurisdictions may challenge Singapore, according to Owens. “The political climate is changing and I do not think that Singapore is correctly reading the political signs that a change is about to come,” he said.

http://www.guardian.co.uk/business/feedarticle/8091600