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Sunday, March 15, 2009

Tax Havens: The handwriting is on the wall!

The OECD has put out a press release about the events that happened over the last week and weekend, in regards to countries moving forward in reforming their tax structures--many by end of August, 2009.

If you remember that earlier I wrote an article about the LGT group in Liechtenstein and how they, in no better term, "got out" of the trust and fiduciary business. This time, every other major offshore tax jurisdiction of note has announced that they will move ahead with sweeping legislation in regards to tax transfer transparency in 2009 without inanition.

Singapore; Hong Kong, China; Andorra; The Isle of Man and; The Cayman Island's, have decided to move forward with adopting the OECD's framework transparency and exchange of information on tax matters.

Liechtenstein, while already being apart of tax exchange agreement with the USofA, will also move forward with legislation in regards to transparent tax information exchange.

The Isle of Man and The Cayman Islands--I think through the virtue of their being UK protectorates-- have already signed, over the course of the last 5 years, tax and transparency agreements with other jurisdictions.

The days of offshore trust administration, as we know it, are over. Other jurisdictions that do not have such agreements, should try their best to adopt the OECD's mindset on transparency and then implement it to distinctively suit their current position within the global economy, or face certain repercussion, more severe than idle threats.

A 1998 report by the OECD "Harmful Tax Competition - An Emerging Global Issue", laid out what the group's leadership at the Ministerial level, decided upon what was "harmful tax competition".

In a nutshell, they admit that there is no one set criteria for a harmful tax evasion. In my opinion, this is because the criteria depends on the individual country that it aggrieved. Rightfully so!

More importantly however, a statement from the International Economic Agency (IEA) by Kristian Niemietz on their blog, liken this tax haven crackdown to that of governments using tax havens as "scapegoats", because those governments have no control over their spending in the bad times and, even worse control during the good times.

They make a compelling case, using the case of Austrian spending in correlation to their overall theme of wasteful spending to link that to a false call against so called "tax evaders":

"Furthermore, it is wrong to maintain, as the adversaries of tax havens implicitly do, that the amount of revenue a government “needs” is somehow “given” and that evaded money reduces the provision of essential public services. If this was the case, why do we often observe budget deficits in years when tax revenues are high?

For example, the government of Austria predicted a balanced budget for 2007. But even though that was a year of exceptional economic growth and buoyant tax revenues, the government stayed in the red. It had spent the windfall as quickly as it had earned it. With governments facing strong incentives to push spending well above optimal levels, the existence of loopholes like tax havens can act as an important check against spending excesses
."


But, what is also interesting, conversely, especially upon review of the US/Bahamian joint tax treaty on transparency and money laundering, the provisions indicate that the Competent Authority in the USofA, can only ask for information regarding tax evasion in regards to the counterpart Competent Authority, if it is accepted that there are no other means of obtaining the information, during a criminal proceeding into tax offences.

That sounds fair enough!

The criteria, however, is based on the premise that the criminal prosecution in regards to what constitutes tax evasion and money laundering, is exhausted in the aggrieved country. Then they would begin to go offshore and ask for tax cooperation for their court procedings.

This can provide a slippery slope into blatant witch-hunting in regards to criminal proceedings into tax evasion and, leave the constitution of the criteria, up to the country the tax law was breached and, especially, under the interpretation of what a federal judge feels what may constitute a breach, to what they do or don't understand as a common or nuance tax breach. It's all just too iffy!

It is not indicated if whether or not criminal proceedings "should" follow upon an investigation, either. But this would in fact defeat the purpose of finding criminal wrong doing and it is understood, by this author, as that.

What should be examined, moving forward with any other joint information on tax evasion investigations, is a co-defined and set standard on what constitutes a tax evader in aggrieved jurisdictions.

This, would define under both parties, what would constitute an internationally understood feasible baseline, as opposed to the set criteria of one country, to which any investigation into tax fraud can be sought with no true delineation into what extent that breach of the law--except for the vagueness of the concept of total exhaustion of "their" law-- should be followed and also warranted.

This would keep both the integrity and sovereignty of foreign countries who have considerably large offshore trust industries, as well as keep industrial countries honest in regards to their pursuit, in genuine nature, of persons who have "truly" evaded taxes or money laundered, all the same, without a fear of over-reaching government intrusion into the private market.

I also think that now, as is, the ease at which the US Federal Government or any entity for that matter, can bring a lawsuit into being in the USofA, is too easy, with leaving the interpretation of the outcomes of the lawsuit, depending on the understanding of the necessity of further investigations of certain aspects of the investigations, up to a federal judge. And, considering US's lawsuit prone judicial system, this is far too frequent of an occurence, to not consider it a threat to the entire governmental systems of both the foreign and domestic country as well as the industry they govern.

The remark that some Federal prosecutors would, on the drop of a dime, "indict a ham sandwich", while cute, is dreadfully important to this issue than we can ever imagine.

Lobbying for set, joint criteria on what is a tax evader, would be beneficial to all sides.
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