Pacific, offshore

Nigel Davies homes in on the tiny Pacific islands of Vanuatu, and wonders whether they’ll benefit from being uncooperative with the OECD*

If you’ve come to this website and you are reading this article, there is a reasonable chance that you know about the many ‘international initiatives’ that are currently affecting tax havens.

A stream of bland and meaningless acronyms – OECD, FATF, FSF, KPMG (please, we don’t really think KPMG is bland and meaningless, so please don’t sue us) – have gushed over tax havens, completely changing the nature of international financial services.

The aforementioned reports – OECD is about tax competition, FATF concerns money laundering, and the FSF is a discredited report into ‘strength of financial centres regulations, KPMG is more a best-practice, technical oeuvre – have their roots in bureaucracy and tax control.

And all finance centres – big and small – are being affected. Most have promised to start willingly and actively shopping tax dodgers from between 2004 and 2010 (so long as there is a ‘level playing field’ which is virtually impossible to achieve).

There are a tiny handful of jurisdictions that are resisting some of these initiatives because they believe they are wrong and too expensive to implement. One such is The Republic of Vanuatu which is fast growing as an international offshore centre, with the financial and banking sector burgeoning amidst the totally tropical environment.

Vanuatu is situated 1,750km north-east of Australia and has been an independent island for 23 years after 74 years of Franco-Anglo rule. The country is made up of 83 islands and although there are 100 languages among the indigenous Ni-Vanuatu people, the main languages are English and French. The legal system is based on English common and civil law.

It has been cautious in its development to ensure that the economy is not rushed, says the Vanuatu Investment Promotion Authority. The country is increasingly aware of what investment and tourism can bring to the island after years of reliance on still-strong fishing and agricultural sectors.

Although 11 hours ahead of GMT, the country boasts good telecommunication services and air links and is attracting investments from all over the world, with a particular interest from Asian countries. The country is increasingly being used by Australians as well, and giant banking groups Westpac and ANZ have been stationed on the volcanic islands for a good while. The National Bank of Vanuatu also offers services and then there are a wealth of offshore banks alongside these main three.

Accounts can be opened, but interest rates are piffling. ANZ offers rates of 0.375 per cent for investments above $50,000 and 1 per cent for deposits of £50,000.

Privacy has been a key issue addressed by the island and investors are protected under the Foreign Investment Act, meaning that only – and strictly only – in criminal cases will the island divulge information about investors.

The government is keen to attract more investment and changes in its personnel will not affect the overall outlook of protecting confidentiality. The VIPA has stated that it will fully comply with OECD recommendations where it thinks it will benefit the country. It feels that the OECD leans favourably on member jurisdictions and reports have sometimes given a misleading representation of the island.

Vanuatu is a member of the International Trade and Investment Organisation, which has spoken out against the OECD for offering preferential treatment to certain offshore centres that have not favoured smaller states. The VIPA believes that as a small nation it is more vulnerable to international reports that may give a negative perception, yet it continues to offer a sound investment base and bring in more international business.

If you are based in this time zone, if you want a private internet bank account, or you simply want to deal with an Australian banking group, then Vanuatu is worth a closer look.

*Four days after this article was posted, the OECD announced that it had removed Vanuatu from its list of uncooperative tax havens. In a statement the organization said: “The OECD welcomes the commitment that Vanuatu has made to improve the transparency of its tax and regulatory systems and establish effective exchange of information for tax matters with OECD countries by 31 December 2005.”

Vanuatu will become the thirty second non-OECD country to commit to its principles and the first to be withdrawn from the list of countries deemed uncooperative.

The government of the Republic of Vanuatu has said it is important for the country to move into line with the OECD to pursue the long term development of its economy, whilst retaining its economic and fiscal autonomy.

The Pacific island nation has committed to a number of measures that will be gradually phased in. From the first tax year after 31 December 2003, the country will be ready to negotiate effective exchange of information agreements for criminals, and for civil tax matters procedures will be in place after the end of 2005.

Vanuatu has also assured the OECD that the appropriate authorities will now have access to information on the ownership of companies, legal entities and trusts established on the island. The government will also oblige all companies established there to keep accounts in line with outlined standards.

The last main amendment states that no new taxation regime or practice will be introduced, or an existing one modified, unless it complies with the principles of transparency and effective exchange of information.

In return, Vanuatu expects that it is withdrawn from the list of uncooperative countries and does not become subject to any framework of defensive measures by OECD member states. The country will now be invited to meetings of the OECD Global Forum and receive assistance in amending or implementing new laws and regulations.