Recently, the Organization for Economic Cooperation and Development ("OECD") issued a report targeting "harmful tax regimes"-preferential, low tax regimes that are primarily tailored to rap into the tax bases of other countries. The report, Towards Global Tax Cooperation: Progress in Identifying and Eliminating Harmful Tax Practices, ("Towards Global Tax Cooperation"), identified a list of tax practices the OECD deemed harmful, such as "ring-fencing" (where foreign customers are subject to rules different than those applied to citizens which encourages the establishment of foreign entities with no substantial activities), a lack of transparency, and the absence of information exchange regarding tax practices. The OECD then released a second report, Framework for a Collective Memnorandum of Understanding on Eliminating Harmful Tax Practices ("Framework"). This report listed the OECD's objections to the policies of harmful tax regimes and provided a host of scheduled remedies, which presumably would be backed by the threat of sanctions detailed in Towards Global Tax Cooperation. Not surprisingly, the Commonwealth countries were among those identified as having harmful tax practices. In January 2001, the OECD met with the Commonwealth countries and other tax haven regimes to negotiate a "mutually acceptable" tax policy. What took place both during and after these negotiations is the subject of this Development. After highlighting the issues at stake and addressing the January negotiations, this Development will consider how two Caribbean countries, the Bahamas and Bermuda, have reacted to the OECD's proposals. These countries provide a good illustration of contrasting positions: while the OECD deemed the Bahamas "non- cooperating," Bermuda gave advance commitment to the OECD proposals. Yet both have essentially adopted the core principles of the OECD proposals that eventually emerged from the January 2001 negotiations. Next, the essay will discuss the role of the Bush administration in shaping the accepted OECD proposals. Finally, in considering the future of tax havens, this Development will conclude that the compromised position advanced by the Bush administration was merely an affirmation of the course of reform already begun by the offshore tax haven regimes themselves.
Hoffman, Taylor Morgan
"The Future of Offshore Tax Havens,"
Chicago Journal of International Law:
2, Article 22.
Available at: http://chicagounbound.uchicago.edu/cjil/vol2/iss2/22