REGIONAL TALKS ON HARMFUL TAX COMPETITION

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PACIFIC ISLANDS FORUM SECRETARIAT Suva, Fiji Islands

PRESS STATEMENT April 28, 2001

Ministers and officials from seven Pacific Island Forum countries listed by the Organization for Economic Cooperation and Development (OECD) as 'tax havens', met in Suva, Fiji April 24-28, 2001 to discuss the OECD's Harmful Tax Competition Initiative.

The Ministers and officials from Cook Islands, Nauru, Niue, Republic of Marshall Islands, Samoa, Tonga and Vanuatu were joined by representatives from Australia, New Zealand and the OECD Secretariat.

The OECD Initiative was developed in response to OECD concerns regarding the supposed erosion of their tax bases through mobile financial activities offered by offshore financial centers.

The Initiative has seen OECD nations request 35 jurisdictions, regarded as tax havens, to commit to changes to the operation of their offshore financial centers, which the OECD feels would draw back lost capital to OECD nations.

A July 31, 2001 deadline for this commitment has been set by the OECD, with the imposition by OECD members of 'defensive measures' on 'non-cooperative' listed jurisdictions being supported by the OECD.

"The visit to the region by OECD representatives has improved their understanding of the vulnerable situation of these Pacific nations," said the Acting Secretary General of the Pacific Islands Forum Secretariat, Mr. Iosefa Maiava.

"This David and Goliath standoff sees the 30 OECD nations (including the richest, most developed countries in the world - United States, Japan, Germany and the United Kingdom) in negotiation with the seven listed Pacific nations.

"The seven listed Pacific nations have a combined GDP of around US$ 1 billion, compared to Australia's annual GDP of around US$ 300 billion, and they have a total population barely one eighth that of Sydney. Niue, the smallest nation, has a population of only 1,800 and an annual government budget of around NZ$ 20 million."

"These nations do not have the resources of OECD members to address the issue of harmful tax competition. This position is not helped by the trade deficits the Pacific islands have vis-à-vis most OECD nations and the need to balance these against the income from the offshore centers, which can comprise 8-10 percent of GDP. Such factors have hampered the ability of the listed nations to negotiate on an equal standing with the OECD," Mr. Maiava said.

The meeting schedule provided an opportunity for the listed countries to hear an update of activities undertaken internationally to progress their concerns with the OECD, as well as efforts by the Forum Secretariat to reach a negotiated agreement which recognizes the concerns of both developed and developing countries.

The seven listed Pacific countries developed a regional position statement clearly outlining their concerns with the OECD Initiative, expressing their desire for good-faith negotiations to arrive at an agreement which will remove the threat of defensive measures by OECD nations.

The listed nations attended bilateral meetings with the OECD, where country-specific concerns, as well as technical questions regarding the impact of the initiative and implementation issues, were raised.

The event concluded with a joint meeting between the listed nations and OECD representatives to discuss general outcomes of the bilateral meetings and the path forward in the light of the 31 July 2001 deadline.

 

REGIONAL POSITION STATEMENT - PACIFIC ISLANDS FORUM

The seven nations of the Pacific Islands Forum -- Cook Islands, Nauru, Niue, Republic of Marshall Islands, Samoa, Tonga and Vanuatu -- listed by the OECD as "tax havens" under their Harmful Tax Competition Initiative agree:

1. All nations have the right to compete in the international financial markets, through the provision of both onshore and offshore financial services. In the Pacific, offshore financial centers offer financial planning services to legally meet the needs of both businesses and individuals. These services include formation of companies, investment management, trustee services, and asset protection. Ongoing improvements are needed in the existing regulatory framework for international financial transactions and markets, to keep pace with their increasing volume, size and complexity. Nevertheless ensuring basic standards are met needs to be done in a way which does not compromise the right of countries to provide these services.

2. The OECD's Harmful Tax Initiative is forcing jurisdictions to choose between either committing to the Initiative (so suffering possible and immediate to long-term loss of economic activity through the loss of offshore sector clients) or not providing a commitment (and suffering loss of economic activity through the imposition of defensive measures by OECD members). In either case, the elements which make offshore financial tools attractive will be removed and so cause shrinkage or closure of this sector in listed nations. This will have severe impacts on government expenditure across all sectors, employment, activities of related industries, and the long-term economic growth of these small nations. It can also be damaging to the integrity of their jurisdictions and to the well being of other countries in the region. The end result will be greater reliance on development assistance.

3. Listed nations have been treated unfavorably, both in terms of the listing and in terms of the standards expected, compared with other offshore financial centers and OECD members. The substance of the OECD-developed Memorandum of Understanding (November 2000) does not attract the support of listed nations. It offers one-sided benefits to OECD members, while OECD nations with offshore financial centers are not required to make an identical commitment.

4. The OECD should immediately offer technical expertise to determine options available to affected jurisdictions to compensate them from loss of business activity. This offer should be made and put in place prior to the deadline for commitment to show good faith by the OECD.

5. The process of negotiation set in train in Barbados, with the creation of the joint Working Group, is a sound one - it promotes effective, inclusive multilateral dialogue on the harmful tax competition issue. Pacific listed nations are committed to reaching a best negotiated solution through this process. We are also committed to working with other listed nations, recognizing the commonality of issues and the efficiency of negotiating as a bloc. Meetings in which all affected countries do not participate, although they may allow dialogue, do not fully achieve multilateraliztion and may act to divide the concerted efforts of affected nations to achieve a consistent dialogue with the OECD.

6. The OECD is requested to commit to a consultative and inclusive process which would allow the development of a mutually acceptable outcome, comprising agreed constituent elements, able to be implemented by both OECD and non-OECD jurisdictions. It is through such a process that standards regarding the operations of offshore financial centers, supportive of the three principles underlying the Initiative (exchange of information, transparency and non-discrimination) can be developed with the full support of the international community.

7. Listed Pacific nations ask that the OECD undertake the same level of constructive dialogue with non-OECD members as they undertook among themselves. We are not asking for the OECD to set a lower standard for non-OECD jurisdictions. Indeed, an agreement that both OECD and non-OECD nations can commit to as equals is an equitable outcome and would remove any perception of disparate treatment of nations.

8. Listed Pacific nations ask that if OECD members wish to counteract the erosion of their tax base (the declared objective of the Initiative) they first adopt appropriate measures, within their own jurisdictions, to deter citizens and residents from using "tax havens" for tax minimization. In this way the increased administrative costs would remain with the benefiting OECD members rather than being borne by the so-called "tax havens."

9. Pacific listed nations request the removal of OECD threat of listing of "uncooperative tax havens" and imposition of defensive measures on 31 July 2001 in order to reciprocate the good faith of the non-OECD group in coming to negotiations. The listed members believe an achievable timetable needs to be set for negotiations. Affected members are committed to protecting their sovereign right to operate offshore financial centers. As such, if the deadline is not lifted and comes into play the membership will have to take recourse to other avenues and fora to resolve the situation.

10. Listed nations are supportive of the proposal put to the OECD by non-OECD nations at the 1st Joint Working Group Meeting (27-28 January 2001) which suggested the creation of a global tax forum. Membership would be open to all jurisdictions publicly committing to the three principles of transparency, exchange of information and non-discrimination. The role of the Forum would be to reach an agreed interpretation of the three principles by December 31, 2001 and then to develop a program of work with an agreed timetable that will achieve widespread implementation of globally agreed standards by December 31, 2005. We ask the OECD to agree to this proposal and place priority upon developing a truly global forum to build upon the discussion in Barbados.

11. Listed Pacific nations support regional cooperation in dialogue with the OECD Secretariat and request the Forum Secretariat to coordinate this. We encourage collectively devised actions by both listed nations and the Forum Secretariat, including direct approaches to OECD members and the media to promote better understanding of regional concerns consistent with this Statement of Regional Position. There exists an ongoing role for both the Forum Secretariat and Commonwealth Secretariat in promoting and supporting multilateral dialogue with the OECD and promoting wider understanding of the concerns of the listed jurisdictions. The involvement of the International Financial Institutions in supporting multilateral dialogue would also be welcomed in recognition of the developmental element of the Initiative and also the World Bank's particular commitment to the development of small states.

12. The OECD needs to recognize the resource and capacity demands being placed on listed nations to fully participate in dialogue and consider providing support for this involvement. The OECD should also look to coordinating its efforts with those of other organisations – Financial Action Task Force, Financial Stability Forum, United Nations' Offshore Forum and International Monetary Fund - examining related issues. Listed nations have no feasible alternative to cooperating with these agencies and it is placing a significant workload on the resources of government. Coordination and efforts to standardize information requests are needed to ease the demand placed on small nations.

For additional information, contact: Ulafala Aiavao at UlafalaA@forumsec.org.fj 

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