OECD Gives the Gift of Time

The Organization for Economic Co-operation and Development (OECD) has extended its deadline for countries to clean up their policies regarding unacceptable tax structures.

The OECD is trying to abolish what it deems are harmful tax practices across the world that prevent a healthy global economy. OECD countries have agreed on a number of modifications to the tax haven aspects of their efforts to eliminate harmful tax practices.

The extension is part of the group's 2001 progress report on such practices around the world. It is the second extension this year after the group initially placed a deadline of July 31 before extending it to November. The new deadline will give nearly a dozen countries more time to amend their tax codes to standards that the OECD finds acceptable.

In its initial report, published in June 2000, the group identified 35 jurisdictions that met certain criteria to be classified as tax havens. Eleven of those countries have made what the OECD considers "commitment" to making progress in abolishing tax haven practices. The 11 are: Aruba, Bahrain, Bermuda, Cayman Islands, Cyprus, Isle of Man, Malta, Mauritius, Netherlands Antilles, San Marino, Seychelles. In addition, Tonga has taken measures to eliminate its harmful tax practices and no longer meets the tax haven criteria.

The report describes progress made over the last year in identifying and addressing harmful tax practices in and out of the OECD community. The report also discusses the work related to member countries and non-member economies. It's a follow-up to a June 2000 report and responds to the 1998 Ministerial Mandate to address harmful tax competition.

In developing the report, the OECD hopes to establish a framework within which all countries, "large and small, rich and poor, OECD and non-OECD," can work together constructively to eliminate harmful tax practices with respect to highly mobile activities such as in the financial and service areas.

The OECD seeks to encourage an environment in which free and fair tax competition can take place in order to assist in achieving its overall aims to foster economic growth and development world-wide.

In light of concerns raised regarding certain aspects of the harmful tax practices project, a number of modifications have been made to the tax haven work that are likely to facilitate future commitments by tax havens.

Some of the highlighted issues include:

• Commitments will be sought only with respect to the transparency and effective exchange of information criteria to determine which jurisdictions are considered uncooperative tax havens.

• The "no substantial activities" criterion will no longer be used in determining whether a tax haven is considered an uncooperative jurisdiction. Jurisdictions that have made commitments prior to the issuance of the report have been informed that they can choose to review their commitments in respect of the no substantial activity criterion. The report also states that OECD member countries would welcome the removal by tax havens of practices falling within the no substantial activities criterion insofar as they inhibit fair tax competition.

• The potential framework of coordinated defensive measures would not apply to uncooperative tax havens any earlier than it would apply to OECD Member countries with harmful preferential regimes.

• The time for making commitments is extended to 28 February 2002. To ensure that committed jurisdictions have enough time to develop implementation plans, the time for making such plans has been extended from six months after the date of making a commitment to twelve months after that date.

  Click here to view the full report.