The world's high-tax governments pledge solidarity forever
Last June, the 30 industrialized nations that make up the Organization for Economic Cooperation and Development (OECD) blacklisted 41 tax havens, mostly small islands and principalities from the Bahamas and Bahrain, to Liberia, Liechtenstein, and the United States Virgin Islands. Alter your financial privacy laws and stop preferential tax treatment for foreigners by July 31, they were told, or face sanctions from member states. So far the Bush administration shows little inclination to alter the U.S. position supporting the blacklist or to extend the deadline.
Despite claims that the intent is simply to expose illegal activity, the clear purpose of the blacklist is to make it easier for OECD states to keep their own taxes too high. "This is really a means of grabbing more revenue for high-tax European nations," explains the Heritage Foundation's Dan Mitchell. If successful, it would "destroy the competitive pressure to keep tax rates down."
Today the havens present a real-- and growing-check on high tax governments. Globalization and the Internet have made it easier for investors to move their assets into offshore tax shelters. The number of such funds has skyrocketed, from 450 in 1986 to 6,000 in 1998. But the OECD claims that over $1 trillion is invested in offshore funds. Peeling back the tax havens' privacy veil, says Mitchell, "is a move towards a worldwide system of taxation based on `information exchange.' That's a system where all countries agree to eliminate financial privacy so their governments can go on fishing expeditions for more revenue."
Spokesman Nicholas Bray denies the OECD is trying to tell any country how to set its tax rates, saying tax cheats are its only goal. "Democracies need governments and governments need to levy taxes in order to provide services," says Bray. "When a person is living in a country, benefiting from these services and not paying their fair share of taxes, it puts an unfair burden on those who do." Or it sends a signal to high tax governments to back off, helping all taxpayers.
Six of the tax havens caved to the OECD pressure right away: Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius, and San Marino. But negotiations between the remaining havens and the OECD have made little progress. The Isle of Man and the Netherlands Antilles agreed to cooperate on the condition that the US., Switzerland, and Luxembourg enact the same reforms.
The point is well made. Several of the OECD nations would qualify for their own blacklist, which requires meeting but one of several criteria: that a nation lack "transparency" in its accounting, or have little exchange of information with foreign tax authorities, or attract foreign investment with no substantial domestic activity. Some US. tax practices and preferences certainly fit the tax-haven description, including taxfree foreign deposits.
Though the OECD itself cannot impose sanctions, the penalties it recommends to member states …