The crackdown on tax havens has begun

The battle, whilst far from won, is underway. On April 2nd in London, the G20 countries, led by France and Germany, decided to put an end to banking secrecy and tax havens. With the word “crisis” on everyone’s lips, it is now more than ever the case that each euro of unpaid tax is needed to fight the recession. The hunt is underway for tax evaders who take advantage of banking secrecy to hide, with impunity, their income and assets.
Financial centres such as Hong Kong, Macao, Singapore, Liechtenstein and Andorra have announced that they will now comply with information exchange standards and allow foreign tax authorities to obtain information about their residents, without transgressing the law of silence.
During the London summit, the OECD issued a white list of tax transparent jurisdictions. However, 42 jurisdictions that had pledged to comply with the OECD’s principle that banking secrecy must no longer stand in the way of requests for tax information but that had not yet signed the 12 bilateral information exchange treaties, are on the “grey” list. This list was welcomed by the NGO Transparency International, but it provoked anger in European countries such as Belgium, Luxembourg and Switzerland, which cannot understand why they are listed with the principalities of Monaco, Andorra and Liechtenstein. They are also scathing about the absence from the list of the Isle of Man and the Channel Islands.
Switzerland, which is unhappy about being on the grey list when it has got down to the lengthy task of renegotiating 70 or so bilateral agreements around the world, is considering sanctions against the OECD. Last week, it blocked 136,000 euros that it was due to pay the OECD and the Swiss government will not think twice about holding up payment of its annual fee, which is in the region of 6.5 million euros, to the OECD.
So will the good resolutions made by a great many financial centres be translated into action? To bring about real change, governments will have to enforce the standards and tax agreements established by the OECD and its partner countries. Sanctions are expected to be imposed on any countries that have not signed the required number of agreements by September. Sanctions could include the removal of banking licences, taxation on transactions with tax havens and an increase in the capital ratio of financial institutions that continue to do business with non-cooperative countries.
The European Commission has officially committed itself to the fight against tax havens and has prepared three draft directives aimed at eliminating banking secrecy in Europe. “Our objective, by the next G20, is that the political commitments will have been put into practice,” said EU Tax Commissioner Laszlo Kovacs. So we will see in September. The next issue is to determine what lies in store with regard to repatriation of capital.