It is not offshore financial centres that are tax havens, but their persecutors in countries such as the US and the UK that have more to answer for, according to a report commissioned by the International Trade and Investment Organization (ITIO), a group of small countries with international finance centres.
Some so-called offshore tax havens actually have better regulatory standards than some industrialized countries, according to the report, published last week by the Commonwealth Secretariat. They are more willing to exchange tax information or identify individuals behind companies or trusts, says the study.
Malcolm Couch, an Isle of Man tax official and ITIO deputy chairman, said many smaller financial centres have been unfairly stigmatized by more powerful countries. “Big countries have no moral or legal edge over small ones,” he said.
Offshore financial centres such as the Cayman Islands and the Bahamas have improved their regulatory standards as a result of the Organisation for Economic Co-Operation and Development’s harmful tax competition initiative, launched in 1996.
In 2000, it published a ‘blacklist’ of 35 tax-haven countries, which prompted offshore centres to make commitments to remove harmful tax practices, improve transparency and exchange information.
This process has given way to “considerable rapprochement” between OECD and non-OECD participants, according to the report. However, non-OECD countries still have concerns about distortions caused by the tax treaty network and the OECD’s blind eye about its own members.
For example, many US states, including Delaware and Nevada, do not require companies to provide beneficial ownership information. Many countries permit the use of bearer shares, which reduce transparency. Switzerland limits the exchange of tax information to cases of fraud, while Hong Kong and Singapore limit information exchange to cases where they have a domestic interest.
Couch said small countries should be involved in the creation of new international standards, rather than have these imposed on them by multilateral bodies controlled by large countries.
The report called on big countries to open up access to the international network of double taxation treaties to small countries. It criticised the OECD for offering small countries “tax information exchange agreements” with-out mutual benefits.