Commentary
Harmful Tax Competition - AView from the OECD
The following presentation was made by Mr.Seiichi Kondo, Deputy Secretary General of the OECD, on January8, at the opening of the consultation between the OECD and blacklistedcountries, on Harmful Tax Competition, held in Barbados, 8th -9thJanuary.
On behalf of our member countries, I wish to thank Prime MinisterOwen Arthur for offering to host this conference and for his personalcommitment to making it a clear success. The OECD is also verypleased that the Commonwealth is co-sponsoring this meeting. Astwo important global groupings of nations around the world, weboth have an important responsibility in the promotion and maintenanceof multilateral dialogue and cooperation.
Our task over the next two days is to engage in a genuinely constructivedialogue on what is, we know, a politically sensitive issue --that of how to ensure fair competition between different nationaltax regimes in a globalized economy. We want competition thatpromotes diversity and innovation in tax systems, while at thesame time leaving countries free to decide both on their ratesof tax and their tax structures. It is important to note a pointwhich had often been misunderstood. We are not trying to set minimumtax rates, or in any way to interfere with the legitimate concernsof individual citizens to protect and maintain their privacy.What we want to defend are the interests of honest taxpayers inall countries around the world. In launching this debate, we arelooking for a genuinely inclusive dialogue, in which all jurisdictions,irrespective of their legal status or of their membership of differentorganisations, enjoy equal participation.
We must examine together what are the real implications of globalisationnot just for our tax systems but also for our economies in general.We must also consider how, in this new, liberalised environment,all countries, large and small, can maintain sovereignty overthe design of their tax systems.
Our watchword is freedom for governments to design their own taxsystems and freedom for citizens to prosper in an environmentwhere investment decisions are not distorted by tax considerations.
We all know that whilst globalisation has a large potential toenhance the welfare of our citizens, these benefits are not alwaysevenly shared. Globalisation can pose problems, not just for individuals,but for governments as well. New opportunities are opened up forindividuals and enterprises to engage in illegal activities, suchas hard core cartels, bribery, money laundering and tax abuses,which distort trade and investment flows. Tax abuses also imposeconstraints on governments' ability to fulfil their democraticallyvoted mandates to provide public services and infrastructuresfor their citizens.
We must urgently address this dark side of globalisation if weare to maintain broad political support for open markets and forthe benefits that these can bring in terms of greater freedomand choice for citizens and enterprises worldwide. The internationalcommunity is attempting to address these challenges in a numberof ways. The FATF, with its regional counterparts including theCaribbean Financial Action Task Force, is achieving progress inthe war against money laundering. The IMF has taken up the agendaproposed by the Financial Stability Forum to strengthen the internationalfinancial architecture. We at the OECD have launched a numberof important initiatives to improve good governance, includingour present work aimed at counteracting harmful tax practices.
All of these initiatives have strong political backing. All areaimed at improving the transparency, integrity and stability ofthe international financial system. But it is important to understandthat each of these initiatives is distinct, led by different groupingsof countries and with different approaches. We would like to believethat our initiative meets the highest standards for inclusivenessand openness to cooperative dialogue, in the wake of the recentchanges that have been made to our process at the encouragementof many of the jurisdictions here today.
Inevitably, governments face complex challenges as they endeavourto coordinate their responses to changing market circumstances.This is true both in the context of cooperation between OECD countriesand in relations between OECD countries and the rest of the world.The recently launched Global Forum on Taxation is intended toaddress these coordination issues in the tax area. This forumwas created in response to a high-level meeting held in Parislast June which brought together nearly 60 countries, half ofthem from the OECD and half from other parts of the world, includingthe six advance commitment jurisdictions. While the exact structureof the forum and its processes are still evolving- and this isan issue on which we would look forward to input from you- itis clear that the forum will be open to all countries that showan interest in fostering international cooperation in tax matters.We very much hope that the international organisations representedhere ! today will actively participate and contribute to its work.
We hope that our discussions over the next two days will enableus to develop a joint understanding of the dangers caused by harmfultax practices for all countries, whether they are members of theOECD or the Commonwealth, whether they are developed or developing,or small or big. If we can achieve such a shared perspective,then this will provide us with a strong platform to take forwardthis work in a spirit of cooperation.
We have a good representative grouping of OECD countries presenttoday. We have the chair of the OECD's Executive Committee, AmbassadorTony Hinton, as well as the chair and two vice-chairs of our Committeeon Fiscal Affairs, which is the main forum for multilateral debateon tax policy in the OECD. We also have the co-chair of our Forumon Harmful Tax Practices. Thus, you will be hearing views thatreflect a common OECD position. I am pleased also to see a largenumber of jurisdictions from the Caribbean and Pacific regionspresent. This is a clear demonstration of the importance thatyou attach to this process.
I can assure you that our member countries have come here to listento your concerns and help you. I hope that you, in turn, willbe prepared to give a fair hearing to our analysis of why harmfultax practices need to be addressed by the international community.Until there is universal agreement on the vital importance oftransparency and openness for effective and fair competition,world financial markets will be subject to tax-induced distortions,which are harmful to competition and result in an unfair distributionof tax burdens domestically.
Over the last 12 months, we at the OECD have taken every opportunityto engage in an extensive dialogue on these issues with all jurisdictions,based on a constantly improving communications strategy, whichtakes into account your concerns as well as ours. We have tried-- successfully, I believe -- to respond to the concerns thatyou have expressed over the process that was put into place in1998. That process has been made more transparent by arrangementsthat ensure that all future commitments are made public.
We have set out clearly in a recently issued document what exactlywe are looking for in terms of the changes needed to curb harmfultax practices. We are pleased to note that these changes eitherhave already been put in place or are in the process of beingimplemented. We have revised the procedures by which jurisdictionscan make a commitment to move forward in this process, with aview to removing some of the political obstacles that previouslystood in their way. And we have responded positively to the requestsfor multilateral dialogue, both by organising this meeting, incooperation with the Commonwealth, and a similar meeting thatwill take place in Tokyo next month for the Pacific area.
The basic principles that have guided us throughout this workremain: transparency; non-discrimination; effective exchange ofinformation. We believe that tax regimes which fail to meet thesecriteria, whether they are operated by countries within the OECDor outside the OECD, are harmful, not just for developed countriesbut also for developing countries and indeed for the very jurisdictionsthat maintain them.
Our contacts with Commonwealth countries have shown that manyof you share these principles. You and we also agree that theymust apply evenly both to OECD and non-OECD countries. In manyways, indeed, the difficulties that we are still encounteringare more related to the application of these principles in practice,than to any disagreement over the principles themselves.
We know that there have been accusations that the OECD countriesare trying in some way to destroy the financial service sectorsof smaller jurisdictions. This is certainly not our objective.On the contrary, we believe that small and agile financial centresthat respect the global principles of transparency and fairnesscontribute to the operation of the world financial system. Equally,it is in nobody's interest to create a situation where jurisdictionsbecome dependent on aid handouts from the developed countries.Our aim is to promote financial service sectors that can competefairly and openly on a level playing field worldwide and withoutbeing tainted by illegal activities or harmful tax practices.Our member countries are certainly not afraid of fair competition.On the contrary, this is one of the basic principles of all OECDwork. As an organisation, we have been at the forefront of promotingfair competition economy-wide, both in the services sector andelsewhere. This is true for taxes as much as for anything else.
We also know that this OECD initiative has created uncertaintyin this region. We believe that the best way to deal with thisuncertainty is to resolve as quickly as possible the issues raisedby harmful tax practices and have all interested jurisdictions- OECD members and non OECD members - commit to a long-term dialogueto eliminate such practices. Our objective is that we should reachJuly of this year and find that our list of uncooperative taxhavens has no or only a very few names on it.
In the meantime, our member countries are aware that the demandsof the OECD and related initiatives have put a strain on yourpatience. Certainly, having all of these initiatives arise withina relatively short period of time has put exceptional demandson the scarce resources of small administrations. The OECD countrieshave expertise that they are willing to share in this respect.I hope that we can find ways of addressing these capacity limitationsand of putting in place a coordinated programme of assistancethat will help you meet the emerging international standards inthe tax area and at the same time maintain your financial serviceactivities.
I am looking forward to what I know will be a lively dialogueover the next few days. My hope and my conviction is that it will,with your help, Prime Minister, and the support of all those present,enable us to identify new ways to move forward in a more cooperative,consensual and inclusive manner.
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