The Organisation for Economic Development and Co-operation has spearheaded efforts to tackle the issues of tax evasion, harmful tax competition and tax havens since 1996 when it formed the Forum on Harmful Tax Practices.
The Forum issued a report in 1998 on harmful tax competition and a second report in 2000 on harmful tax practices in which the OECD identified jurisdictions that it considered tax havens.
The OECD’s definition of a tax haven, given in the 1998 report, clarified that no tax or a nominal tax on relevant income was not sufficient in itself to characterise a country as a tax haven. Other factors have to be taken into account when assessing a jurisdiction, including the absence of an effective exchange of tax information; a lack of legal, regulatory or administrative transparency; and the attempt to attract purely tax-driven investments and transactions.
The Cayman Islands made a commitment prior to the release of the 2000 report that it would abolish all tax practices considered harmful by the OECD. Cayman was, as a result, not included in the list of uncooperative tax havens, although it met the tax haven criteria at the time.
Both OECD and non-OECD jurisdictions collaborate in the Global Forum on Transparency and Exchange of Information to develop the international standards for transparency and the effective exchange of information in tax matters.
These efforts culminated in the 2002 Model Agreement on Exchange of Information on Tax Matters, which has since served as the blueprint for more than 100 tax information exchange agreements.
TIEAs provide a legal basis for the exchange of any kind of information that is ‘foreseeably relevant to the administration or enforcement of the domestic tax laws’ of one of the treaty partners. In most cases, information requests relate to the examination or investigation of a taxpayer’s tax liability.
Each treaty names competent authorities in the treaty jurisdictions that may demand or disclose information. In the Cayman Islands, the competent authority is the Tax Information Authority, which was established in 2005 under the Tax Information Authority Law (2005) to provide for international cooperation in tax matters.
At a meeting in Berlin in 2004, the Global Forum established that not all countries had shown the same commitment to implementing OECD transparency standards. In order to achieve a level playing field in terms of tax practices, the Global Forum set up a ‘Sub-Group on Level Playing Field Issues’. The organisation encouraged jurisdictions to adopt principles for the exchange of tax-relevant information and transparency and to negotiate TIEAs.
Since 2006, the Global Forum has assessed the legal and administrative framework for transparency and the exchange of information in 84 countries on an annual basis, identifying countries that are making progress and those that are not. In 2008, the Sub-Group decided that jurisdictions that have concluded more than 12 TIEAs would receive positive recognition.
At the G20 meeting in London in April 2009, the OECD presented a progress report on the implementation of OECD information exchange standards. The report distinguished between countries that have committed to, but not yet substantially implemented, the standards (grey list) and jurisdictions that have substantially implemented them (white list).
The progress report has been regularly updated to reflect any progress made by individual countries.
The Global Forum will meet on 1-2 September in Mexico to discuss this proposal and prepare a report on the latest issues prior to the Pittsburgh G20 summit later in September.