OECD Names Countries that Fail Tax Transparency Test

Luxembourg, Cyprus, the British Virgin Islands and the Seychelles all fail to meet international standards on tax transparency, according to a global tax forum overseen by the Organisation for Economic Co-operation and Development (OECD).

The Global Forum on Transparency and Exchange of Information for Tax Purposes, a group of 121 countries, organised by the Paris-based OECD, accuses the four locations of failing to share taxpayer information with other countries effectively or to gather information on beneficial ownership of the corporate entities registered on their territory.

The forum added that these jurisdictions were the four out of 50 it examined which were non-compliant with internationally agreed best practice, although Austria and Turkey were rated as only partially compliant. Other countries found to have shortcomings in their laws and regulations included Switzerland, Botswana, Brunei, Nauru, Panama, United Arab Emirates, Liberia and Vanuatu.

While the US and the UK were found to be largely compliant both were ranked below countries such as Canada, China, France, India and Japan, which were all found to be compliant with best practice.

The report was issued at a meeting of the OECD’s transparency forum in the Indonesian capital of Jakarta, attended by more than 80 countries. It is expected to put pressure on laggards to announce further reforms to avoid the possibility of blacklisting by tax authorities and development banks.

Following the meeting, Indonesia’s finance minister, Muhammad Chatib Basri, commented: “At a time where most economies are extremely fragile, having so many jurisdictions working together and agreeing on very sensitive outcomes to improve international tax cooperation is key and extremely positive. I have no doubt that this is the kick-off to a new era in the global tax environment.”

Luxembourg retort

A statement in response to the report from Luxembourg’s Ministry of Finance said the European Grand Duchy “considers this rating to be excessively harsh, particularly in view of the Global Forum’s previous observations with regard to the legal and regulatory framework put in place by Luxembourg.

“Based around this legal and regulatory framework, Luxembourg has made a commitment to exchange information effectively and has extensive experience when it comes to exchanging information for tax purposes.” According to reports, European Union (EU) sources say that Luxembourg is under investigation by the European Commission (EC) for favourable tax deals it has agreed with major multinationals.

The financial secretary of the British Virgin Islands (BVI), Neil Smith, was also critical of its rating, which he said did not accurately reflect the current practices in the BVI since 2012. “Unfortunately this classification misses the mark. It does not give an accurate reflection of the standards of tax information sharing found in the BVI.”

The OECD has focused on tax evasion and avoidance by both companies and countries in recent times. Last month, it published letters it had received from European companies including drinks group Diageo and Russia’s Gazprom, and groups representing US multinationals, requesting that it reconsider proposed measures to tackle tax avoidance as these could be detrimental to trade and investment.

Although the OECD has stopped short of adding non-compliant countries to its list of tax havens, a country’s omission from that list has traditionally been contingent on a willingness to share tax information. While only two small Pacific islands are on the list of tax havens, other countries including Ireland have been accused by politicians in larger countries such as the US of being tax havens.

Earlier this year, German politicians demanded improved transparency and tougher anti-money laundering (AML) controls for Cyprus’s banking sector as a condition for providing bail-out funding for the island.

The Group of 20 leading economies (G20) has asked the OECD to lead efforts on curbing international tax evasion and avoidance and has stated that it aims to put pressure on non-cooperative jurisdictions. It said in a statement that only a ‘very limited number’ of its responses to requests for information could be considered as unsatisfactory. In September, the G20 declared that it expected countries to agree to automatically exchange information.

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