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BEHIND THE HEADLINES: Tax haven fight is not over


TONY BEST

BEHIND THE HEADLINES: Tax haven fight is not over

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“THE GAMES ARE NOT OVER.” As a matter of fact the effort to protect the Caribbean offshore financial services sector needs more juice.

Coming on the heels of a successful effort by CARICOM diplomats in Washington led by Barbados, Antigua & Barbuda and The Bahamas that virtually forced the local government council of the District of Columbia to drop a potentially harmful list of so-called tax havens around the world, Barbados’ Ambassador to the United States (US), John Beale, issued his warning to Caribbean governments, executives of US corporations and others.

Beale’s warning: continued and vigorous action was needed to prevent various states in the US from preparing such ill-conceived lists in the future.

“It was an intense information and lobbying effort by the region as a whole, especially by the countries whose economies could have been hurt by the council’s action that encouraged its members to reverse themselves and drop plans to go forward with [the effort] that unfairly targetted countries,” Beale told BARBADOS BUSINESS AUTHORITY.

“We are happy that the council recognised the economic harm the list could have done to us in the region and quite possibly to US firms which do business in Washington and the Caribbean,” added Beale, the rotating chairman of CARICOM’s diplomatic corps in the nation’s capital.

“It is a victory for the region and our efforts to some extent were somewhat rewarded. But we have to understand that due to the US constitution even if we have a [tax] treaty with the US unless it specifically mentions taxes from states, the treaty wouldn’t include the states” in its provisions.

That’s precisely what the District of Columbia sought to do when its local government council enacted a budget provision to raise revenue. Unfortunately, the measure would have forced companies, banks included, that are doing business in the capital and in the Caribbean, that were on the tax haven list, to report all of their income to the DC tax authorities.

The council had unwisely and hurriedly devised the measure that would hit almost 40 jurisdictions around the world, including Barbados, Antigua, The Bahamas, Grenada, the Cayman Islands, Bermuda and Dominica. Conspicuously absent from the list were some of the world’s largest “tax havens” which range from Switzerland, Ireland, and France to the United Kingdom and the US itself.

“The law unfairly targets small Caribbean jurisdictions even though many of them meet international transparency standards and spend disproportionate resources to help US tax enforcement,” complained Bruce Zagaris, a prominent tax attorney and expert in Washington, who used to advise Barbados.

The district’s legal code defines tax havens as jurisdictions that lack transparency, facilitate the establishment of foreign owned corporations or that have created a tax regime which encourages tax avoidance and evasion. But as Zagaris explained an an op-ed in Tax Notes International, a widely read publication, the realities and the ironies of the council’s actions were ignored.

Heading that list was the fact that the district, the centre of power and legislation in the world’s wealthiest nation, was attempting to raise revenue “on the backs of Caribbean jurisdictions”, Barbados included. Next, when it came to transparency, the “biggest deficit in transparency” was the US and the district.

“Even though the Financial Action Task Force found the US non compliant on corporate transparency and gatekeepers standards in 2006 and strengthened its standards in 2012, neither the US nor the district improved its own,” Zagaris explained.

The situation in the Caribbean is much different.

“In most of the Caribbean jurisdictions, the incorporation of entities requires registration with the Financial Services Commission after showing fitness to conduct international business,” Zagaris pointed out. “In the district there are no requirements concerning experience, expertise, or lack of criminal record for corporation formation agents.”

In essence, Barbados and others in the region were doing more to prevent corporate tax evasion than the district itself. Yet the council felt emboldened to single out the island nations as wrongdoers that facilitated tax cheats. Call it chutpah or hypocrisy, but DC went ahead with a programme that would ultimately adversely affect the corresponding relationships which Caribbean states have with US banks.

That explains why with the proverbial tax sword of Damocles hanging over their heads, Caribbean states fought back. Beale and Antigua’s top diplomat, Sir Ronald Sanders, for instance, were able to get their ambassadorial colleagues to write to the DC council and point out the folly of its ways. So too did the Council of State Taxation (COST), an organisation financed by some of America’s largest corporations which warned the district that its actions against the Caribbean could backfire on DC by encouraging firms to find ways to reduce taxes and other obligations there.

“COST was able to point out the potential trouble the district could face as a result of its council’s actions,” said Beale. Montana and Oregon have introduced a programme that’s somewhat similar to DC’s and Kentucky is also contemplating a move against “tax havens”.

“We have to be vigilant,” said Beale. That makes eminent sense.

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