The Swiss Neue Zürcher Zeitung covers the announcement of the OECD’s global standard for automatic information with the headline “New tax reality” and the subheader “pressure on bank secrecy”:
OECD
Cayman registers almost 20% of FATCA Foreign Financial Institutions globally; more than the UK, Switzerland and Luxembourg combined
Guernsey – population 65 thousand – was recently reported to be eighth worldwide in number of Foreign Financial Institutions registered under the US Foreign Account Tax Compliance Act (FATCA). FATCA, which became law in March of 2010, requires foreign financial institutions (FFIs) with US clients to register with the IRS.
Which countries have registered the most Foreign Financial Institutions under FATCA so far?
Automatic Information Exchange: Brief media updates from Liechtenstein, Luxembourg and Switzerland
Liechtenstein’s approach to the OECD’s Automatic Information Exchange standard seems to be driven by realpolitik, based on an article on the Vaterland.li site:
“The end of bank secrecy is in sight. The OECD has swiftly produced a standard for automatic information exchange, which should stem the flow of cross-border tax evasion.”
“Liechtenstein’s government, closely watched internationally, declared last November it would admit automatic information exchange.”
The director of the Liechtenstein bank association is quoted saying: “The positive repercussions, especially among international partners, underline that this was the right decision.”
The article concludes:
“By admitting a future information exchange standard, Liechtenstein is able to shape the standard and promote its own interests. The government has already been able to take part in the development of the OECD standards which were presented today in Sydney.”
Meanwhile, a short article in the Luxembourg Tageblatt says that the finance ministers of Luxembourg and Switzerland met in Bern last Thursday (Feb 20th). “On one issue, [the ministers] shared the same opinion: that Automatic Information Exchange needs a global solution.”
Please see the Tax Justice Network’s analysis on Automatic Information Exchange here and here: when secrecy jurisdictions say “global solution” what they really mean is “get lost”.
(original news articles in German, translation with some help from google)
End of year gift to readers: OECD FATF country ratings as an excel file
The OECD recently published a report on Illicit Financial Flows which has received remarkably limited media coverage so far considering its contents. Among the report’s findings are that:
Cyprus news: Finance Minister defends Cyprus record following negative OECD rating
(via incyprus.com) Following the OECD rating Cyprus as non-compliant with tax transparency standards, the finance ministry has said:
“It is our firm belief that Cyprus has already taken steps and will take all necessary additional steps to implement the required changes and ensure that during the next review stage in 2014, the assessors will note a very significant improvement on all measured parameters and have Cyprus’ overall rating changed to a much better one than the current rating”.
By way of further explanation of low compliance rates with tax return filings, the ministry added that these were “partly due to uncertainties as to the population of active companies in Cyprus, with the total number of active companies artificially inflated” (bold added).
Back in April the Treasure Islands blog posted this photograph taken by Norwegian business newspaper dn.no of the company registry in Cyprus:
Latest OECD Compliance ratings: what the media in non-compliant countries are saying
Last Friday the OECD Global Forum rated Luxembourg, the British Virgin Islands, Cyprus and the Seychelles as non-compliant with tax transparency standards.
The Tax Justice Network blog has much more, noting for example that these jurisdictions fell “woefully short” of the OECD’s “rather low standards” while Switzerland “failed even to make it past the first stage of a two-stage assessment”.
How have the media in some of these countries reacted to the report so far? In Luxembourg and the British Virgin Islands, mostly by pointing fingers at other jurisdictions and criticising the OECD. The Swiss coverage also has a strong focus on other countries but is relatively more balanced. A brief overview:
Luxembourg
Wort.lu reports that the Luxembourg Finance Ministry “had delivered a preemptive strike this week, issuing an official statement ahead of the publication of the report by the Global Forum on Transparency and Exchange of Information for Tax Purposes.”
It also says that “Switzerland fared even worse than the Grand Duchy, being found lacking in adequate laws and regulations. Austria and Turkey meanwhile were found to be only partly-compliant with international standards.”
“The British Virgin Islands, like Luxembourg, criticised the report, saying that it had not taken into account recent reform efforts.”
The pre-emptive statement by the Luxembourg finance ministry had said that the score given to Luxembourg was “excessively harsh,” and that Luxembourg had made a “commitment to exchange information effectively”.
“The ministry pointed out that it receives a high volume of requests for information each year. Over a three year period, it received 832 requests of which 785 were complied, a track record which it considers good given the high volume.”
Switzerland
Neue Zürcher Zeitung : Red cards for Luxembourg and Cyprus
“The Global Forum – linked to the OECD – has evaluated the tax cooperation of 50 countries. Switzerland was not graded due to missing prerequisites.”
“Austria had to settle for a “partially compliant” rating.”
“Several jurisdictions with internationally significant finance centres – US, UK, Hong Kong and Singapore – received the grade “largely compliant”.
“The gaps identified by the Global Forum require several changes in legislation, which the Swiss parliament has not yet dealt with. As a result, Switzerland is at the moment in the illustrious company of Panama, Botswana, Liberia, Nauru, the Marshall Islands and eight other jurisdictions which…are not yet ready for the second phase evaluation of the Global Forum.”
A second NZZ article has the headline Switzerland can breathe out:
“In Jakarta the plenary of the 121 members of the Global Forum ended on Friday. The delegation from Bern rated the fact that Switzerland was not explicitly criticised in the yearly report as a success.”
“Ambassador Fabrice Filliez of the Secretariat for International Financial Matters went further, saying that the advances achieved in order to adapt to international standards had been validated.”
“Switzerland was not included in the country ratings published in Jakarta due to its missing legal frameworks. As a result it was less in the spotlight in comparison with Luxembourg, Cyprus, the Virgin Islands or the Seychelles, which received insufficient grades.”
“The pressure on Switzerland will not diminish, however. The Global Forum is counting on gaps in legislation to be amended.”
(translated from the German with some help from google: corrections and suggestions welcome)
Swissinfo.ch: OECD tax forum complains Swiss making slow progress
“Switzerland has still not met international standards on tax transparency, potentially putting investments at risk, a global tax forum warned Friday in Jakarta.”
British Virgin Islands
BVI news: BVI again described as non-compliant, says the classification is inaccurate
“The British Virgin Islands has again been whipped into damage control mode; this time accusing an overseas group of using outdated data to paint a bad picture of its tax information-sharing mechanism.”
“The Global Forum on Transparency and Exchange of Information for Tax Purposes – its ‘Peer Review Report’ – classified the BVI as non-compliant. But the BVI government said the classification is outdated, and does not accurately reflect the current practices in the BVI since mid-2012. The controversial assessment covered the period from June 2009 to July 2012.”
“Speaking from the Sixth Meeting of the Global Forum in Jakarta, BVI Financial Secretary Neil Smith said it is unfortunate that the Global Forum’s classification “misses the mark”.”
“For a more up-to-date view of the territory’s tax sharing advancements, the BVI government has requested that a supplementary review be conducted as soon as possible. It also expressed confidence that the supplementary review will present what it describes as an accurate and compliant rating of the BVI.”
Financial Secrecy Index score used as risk indicator in new OECD anti-corruption handbook
On November 7th, the OECD launched an updated edition of its Bribery and Corruption Awareness Handbook for Tax Examiners and Tax Auditors.
The handbook “considers the various types of corruption that a tax examiner or auditor are most likely to encounter in their work…so that tax officials can better understand how their contribution can assist criminal investigators and law enforcement authorities in countering these crimes.”
It notes that “In order to conceal evidence of bribery and corruption, taxpayers will often use the same techniques that they also use to conceal income when evading taxes or laundering the proceeds of crime”.
The core of the handbook is a set of indicators covering the taxpayer’s external and internal risk environment, as well as indicators on transactions, payments, and money flows, among others.
It is written in simple language, and has multiple references to offshore companies, shell companies, and tax havens.
Starting with the planning phase of a tax examination, for example, officials are recommended to consider “the use of foreign entities and operations, the terms of contractual or pricing arrangements, details of fund transfers, and use of tax haven locations” (pg 17).
Page 34 includes a diagram showing the use of a joint venture via an Offshore Company to set up a corrupt deal, while page 39 provides an example of a commission payment (suspected bribe) routed through an offshore company in a tax haven.
The first two indicators proposed to evaluate the internal risk environment of the taxpayer are:
– a complex or international legal structure with no apparent commercial, legal or tax benefits.
– [the taxpayer] owns or controls a legal entity with little or no commercial purpose, particularly one located offshore.
Among the external environment indicators, a high score on the Financial Secrecy Index is included as an indicator of a high risk country, together with low scores on the Corruption Perceptions Index and the Bribe Payers Index (see first note on page 25 of the OECD handbook).
Annex A contains a list of useful websites and resources and again mentions the Financial Secrecy Index.
As of December 2012 only Nauru and Niue were listed as tax havens by the OECD.
2 signs that secrecy is still good business: Cayman registration income up 50%; Citywealth mag preparing 2014 awards
Between May and July of 2013, the Cayman Islands General Registry collected 50% more in fees than in the same period of 2012. According to the article in CNS Business, the Cayman Financial Service Ministry will also “be working with the industry on Cayman’s action plan to deal with beneficial ownership of offshore companies, which arose from the UK’s G8 agenda.”
In the meantime, City Wealth magazine is preparing for the third edition of its International Financial Centre Awards in London on the 23rd of January 2014.
Jurisdictions covered are:
• Bahamas
• Bermuda
• Cayman Islands
• Cyprus
• Gibraltar
• Guernsey
• Hong Kong
• Isle of Man
• Jersey
• Luxembourg
• Malta
• Singapore
• Switzerland
@US and UK govts, EU, G8, G20, OECD and co: whatever you’re doing about tax havens, it doesn’t seem to be working yet.
Financial Secrecy Media Monitor 