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Wednesday, April 8, 2009

More than a TIEA?

The fast moving developments throughout the offshore financial sector world, in regards to the crack down on tax havens, has hit a particular twist.

The Organization of Economic Cooperation and Development (OECD) has announced that four more countries, Costa Rica, Malaysia, Philippines and Uruguay, have made commitments to removing the impediments to their regimes in regards to providing a base for more transparent tax exchange information systems.

Now, the offshore trust industries in those four countries, are minimal compared to the importance of the giants in the Caribbean like the Bahamas, The Cayman Islands and Bermuda. But, the issue is not only is there a sense in the air from the OECD that pressure for more Tax Information Exchange Agreements (TIEA's) are required. But, the impediments to carrying out the mandate for these agreements, is also crucially important to the OECD--which stands as a proxy organization for the G-20.

A recent train of thought has been to take a needs based approach to the matter, in regards to signing TIEA's, on the basis of working them into other bi-lateral arrangements with viable and participating trade partners, with which there are mutual interests. And, with this effort, stave off the process for as long as possible of dealing with full disclosure to the G-20 group and the OECD at large, while appearing to fulfil our obligations and at the same time avoid major capital markets who would use our services until the last nail knocks.

The atmosphere for tolerance in regards to this type of tactic, taking into consideration the work that has been undertaken by the OECD and the G-20 since the mid-1990's, apparently is sour. The tone for a need to do more is considerably loud.

As said with the recent commitments by the four countries mentioned in this article; they are not moving forward with TIEA's primarily, but, moving forward with the transforming their internal regulations, which sets the baseline for full and honest openness, in regards to tax transparency across the board and on the whole.

The idea of the "removal of impediments" to their respective tax regimes to come into accordance with the OECD standards seems openly abstruse, however. In fact, to go even further, it is as vague as everything else in regards to this recent effort to push offshore jurisdictions coming from the OECD, into offshore jurisdictions, being more transparent with their business operations.

To this date, since the initial push towards regulating offshore jurisdictions from onshore, started in the 1990's in earnest, there has not been a standardized code for what is "tax evasion", adopted by the chief proponent and focus point of the G-20, the OECD.

If there is no standard for identification of the genuine article, then how can one remove the impediments to its effectiveness?

The threat, in regards to when will countries be black-listed for non-compliance as well as what will be the actions taken, from the G-20 countries, in regards to the penalties, is also vague. In fact, to be fair, no one has a definite answer to what will be the ramifications.

One can only assume that there will be economic sanctions; embargo's; travel restrictions; increased diplomatic pressures and; non-international cooperation on a various amount of issues.

In light of this and to take the matter serious from a development standpoint, I have three recommendations, in regards to helping to prepare for the changes in the way offshore jurisdictions will be forced to doing business:

a) Governments should inform and coordinate with the relevant stakeholders in the industry, every step of the way in regards to a total and comprehensive strategy to tackle all of the issues regarding TIEA’s and the entire OECD standard on Harmful Tax and Transparency as well as lay out on the table the potential threats and sanctions to be levied, if there is to be a lag in compliance or, on the other end, a decision for non-compliance

b) There must be an alignment in regards to priorities and obligations to a country's Financial Services Industry, in regards making sweeping analyses on the economic impact of (i) losses in government revenue (ii) potential employment losses (iii) assessing the viability of the development of new financial products and services to mitigate against losses (iv) provide detailed assessments on the potential regional and international competitors to be impacted and the steps they have taken and; (v) provide details on the potential/projected impact the new standards to be imposed on the current tax regime.

c) TIEA negotiations, should not only be met and taken in the context and spirit of identifying other, wider international obligations and the procurement of goods and services for citizens, through international and regional trade agreements. But, also, taken into the broader context of modernizing tax regimes to be compliant with the way the global economy, "will" be, perhaps, working moving forward.

The truth of the matter is, is that regardless of the likelihood of the implications of the offshore countries, being decimated in a full scale internecine battle with the G-20 on tax evasion, the vagueness of the term tax evasion or the sanctions behind the term black-list, the merits of TIEA's or not, certain countries, are getting in line to do their best, in regards to complying with the OECD's mandate as much as possible.

Everyone should take this opportunity to not only comply, but move forward progressively.
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