Since assuming the role of master of the taxation universe the Organisation for Economic Cooperation and Development (OECD) has sought to undermine and destroy countries such as The Bahamas, which provide legitimate services to high net worth individuals (HNWI).
Using its 1998 report Harmful Tax Competition – An Emerging Global Issue and the follow up report Towards Global Tax Cooperation in 2000, the OECD has been both relentless in attacking offshore ‘tax havens’ and disingenuous in its blind eye toward its own ‘onshore tax havens’.
From the inception of its initiative, some experts have called into question the OECD’s action.
In 2000, Daniel J. Mitchell, a Senior Fellow of the Heritage Foundation wrote that the OECD’s proposal to do away with “harmful tax practices” not only “contradicts international norms” but also “threatens the ability of sovereign countries to determine their own fiscal affairs.” He added that the OECD proposal would “create a cartel by eliminating or substantially reducing the competition these high-tax nations face from low-tax regimes.”
Tax expert Marshall J. Langer attacked the OECD’s 2000 self-review as “completely lacking in credibility.” The report acknowledged that there were member countries with “harmful preferential regimes” but unlike The Bahamas and other offshore jurisdictions, the OECD member countries submitted self-reviews of their preferential regimes.
For example in the 2000 report, Mr. Langer stated that the US admitted to only one preferential regime foreign sales companies which has already been attacked by the WTO; the United Kingdom did not admit to having any preferential regimes; Switzerland admitted that its administrative and service companies may be preferential regimes while Ireland admitted to only two – the international financial services centre and the Shannon Airport Zone.
Mr. Langer pointed that non-OECD countries with tax havens were not attacked because “it was not politically prudent for the OECD to do so.” He then goes on to make the startling point that “most OECD countries are themselves tax havens.”
“No one outside the OECD has empowered the OECD to use its massive economic power to crush tax competition offered by low-tax countries that are not OECD members,” he wrote.
He continued: “Even worse, most OECD member states are guilty of egregious unfair tax competition that is much more serious and harmful than that of which the OECD is complaining. These activities…have been conveniently ignored in the OECD’s self-assessment of harmful activities by its own members.”
Apart from Barbados, most financial services centres in the Caribbean including The Bahamas capitulated in the face of such “massive economic power”, so as to be removed from the blacklist, as the self-serving Towards Global Tax Cooperation June 2000 report became known.
The response by the region and The Bahamas after being de-listed was to offer to cooperate but only if there was a level playing field.
Earlier, Minister of State for Finance, James Smith told the Business Journal that The Bahamas position was in line with that of the region in demanding that any concession requested by the OECD would be granted only if they also applied to OECD member-states.
Essentially, the offshore financial services centres are stating that the OECD through the FATF and other bodies is seeking to apply onerous requirements and sanctions for the same behaviour that goes unsanctioned within the OECD.
Professor Gilbert Morris has said that the level playing field is an untenable position for The Bahamas and other offshore financial centres.
“Even if the field were level which it is unlikely ever to be, they will simply keep moving the goal posts,” he observed. “In a lecture in Cayman he said it was time for these jurisdictions especially The Bahamas to create its own leveraged position and be prepared to defend its position through strategic alliances.”
C. E. Huggins, The Bahama Journal
