The pressure is mounting on offshore jurisdictions - Editors Comment

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Tuesday, 17 March 2009 11:12

The pressure is mounting on offshore jurisdictions. Much of this appears unjustified and unnecessary, but in recent weeks the trend has gathered momentum.

Speaking at a news conference with German Chancellor Angela Merkel on 14 March, the Prime Minister said, “All jurisdictions must come within the new rules that govern the exchange of tax information. And so as far as we are concerned every country, every dependent territory has got to come within this. As far as we are concerned to sign up in principle has got to be followed by bilateral agreements that show that you mean that you are going to take action. So we are insisting on 12 bilateral agreements from each country to show that they are serious about implementing the principles of exchange of information.”

In a further sign of the times, on Friday 13 March Switzerland announced it would adopt the definition of tax evasion used by the 30-nation Organisation for Economic Cooperation and Development (OECD) when deciding whether its banks would turn over tax information of international clientele to the clients' countries of origin upon the request of those countries. Switzerland has in the past generally turned over such information only in situations it considers to be clear-cut fraud. It is interesting to note that Switzerland makes a distinction between tax evasion and tax fraud, which most countries do not.

Switzerland, which houses about one-third of the estimated US$7 trillion stashed in “offshore” bank accounts, has come under strong criticism from leading political figures from a number of countries, and in early March was named by the OECD as an uncooperative tax haven, along with Andorra, Austria, Hong Kong, Liechtenstein, Luxembourg, Monaco and Singapore. Austria and Luxembourg have also agreed to adopt the OECD’s definition of tax evasion.

The New York Times quoted a Washington tax lawyer as saying the “adoption of the OECD standards is a significant signal that bank secrecy as it has existed for generations is coming to an end.”
While initial indications were that Obama would have too much on his plate to give priority to a clampdown on so called ‘tax havens’, it now appears that the new regime will give priority to reforms in the area.