Financial Transparency Coalition

This analysis is based largely on the recent Tax Analyst article, which summarizes a recent article by Irma Johanna Mosquera Valderrama called “EU and OECD Proposals for International Tax Cooperation: A New Road?”

As far as international tax cooperation goes, the OECD is the organization that holds the cards.  Or at least it does when it comes to the standards by which countries exchange information for tax purposes.  According to OECD guidelines, countries which have negotiated bilateral Tax Information Exchange Agreements (TIEAs) exchange of information for tax purposes on request when it is “foreseeably relevant.”  The OECD also maintains a gray list of so-called “tax havens;” jurisdictions with a lack of transparency that have signed fewer than twelve TIEAs.  The jurisdictions which reach that threshold are removed from the list.

The OECD guidelines are problematic.  First the number twelve is completely arbitrary.  For example, tax havens often pursue TIEAs with Nordic jurisdictions because they can “negotiate seven treaties at once, allowing them to quickly achieve more than half the number of agreements required to be moved to the OECD’s white list of cooperative jurisdictions.”  As Richard Murphy has said, this means that Bermuda, by signing “agreements with governments representing 0.43 percent of the world’s population, [can get] 66 percent of the way to international acceptability on tax, which shows just how badly wrong the OECD got its tax haven listing.”

Second, per the TIEA requirements, tax information is only provided if another country specifically requests it.  This means that countries must have a reasonable idea that a certain citizen is evading tax, which would first require an investigation or other such effort.  This information should be provided automatically.  There is no reason not to.

The European Union is discussing an amendment to its current guidelines on tax information exchange and cooperation.  Their new guidelines aim to: replace mutual assistance with administrative cooperation and recovery of claims; amend the savings taxation directive; and tackle tax competition.  I’m not sold on the importance of mitigating tax competition—though I can see why the EU would be reasonably concerned—but the rest looks somewhat hopeful.

The EU document even specifically points out it’s a problem that “the exchange of information proposed by the OECD is upon request rather than being a compulsory and binding requirement.”  The EU also agrees the OECD framework is unsatisfactory given that its 12 TIEA threshold is not based on qualitative values and if a country concludes twelve TIEAs, it is regarded as cooperative. The EU last recognizes that the OECD allows “governments to escape its blacklist merely by promising to comply with the information exchange principles, without ensuring that those principles are actually put into practice.”

But here’s where I get a little fuzzy.  The EU has stated its “objective is not to target tax havens per se but to reach agreement with as many third countries as possible on common principles of cooperation and transparency.”

Of course you do. What do the UK, Andorra, Ireland, and Malta have in common?  They’re members of the EU.  They’re also secrecy jurisdictions.

All in all it looks like a step forward.  But I’ll just go ahead and remain skeptical until some substantive action is taken.