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News From Mexico and the OECD

By Michael B. Nelson, Esq. - Email Editor

Date : September 8, 2009

Within the last nine years, there has now been five annual meetings by jurisdictions concerned with World-Wide Transparency and free exchange of financial and tax information between cooperating OECD and Non-OECD countries.

GFTE was first established in 2000 for the principals of transparency development and improvement as well as defining a method for the exchange of more valuable information between member countries. This year’s annual meeting had riveting discussions given the most recent Agreement between the U.S. and Switzerland (see prior newsletters) on creating more immediate transparency and directly related information exchange. The majority of this year’s conference was focused on the fundamental procedures for jurisdictions to provide effective cooperation in international tax matters. There continues to exist a comprehensive need for measuring the value and contributions of information being exchanged as well as the value and usefulness of transparency laws and their subsequent applications by each government to the public section of financial institutions.

Before this year’s conference the cumulative achievements of the GFTE have included:

1. All OECD countries now accept Article 26 (Exchange of Information) of the OECD Model Tax Convention, as updated in 2005, following the withdrawal in March 2009 by Austria, Belgium, Luxembourg and Switzerland of their reservations to Article 26.

2. Hong Kong, China and Macao have endorsed the standards at the 2005 Global Forum meeting in Melbourne and have now put forward legislation to enable them to implement the standards.

3. Singapore endorsed the standards on 10 February 2009 and proposed relevant legislation in June 2009 intended to comply with the internationally agreed tax standard.

4. More than 75 tax information exchange agreements (TIEAs) based on the Global Forum’s model have been signed since the beginning of 2008.

5. Andorra, Liechtenstein and Monaco – identified by the OECD in 2002 as un-cooperative tax havens – have endorsed the OECD standards and indicated their willingness to change their domestic legislation and to enter into agreements for the exchange of information for tax purposes.

6. Niue, which was identified as a tax haven by the OECD in 2000, reports that it has now eliminated its offshore sector and dissolved all of its international business companies, trusts, partnerships or other offshore entities.

7. Brunei, Costa Rica, Guatemala, Malaysia, the Philippines and Uruguay have all endorsed the OECD’s standards of transparency and exchange of information and agreed to implement them.

8. Belgium, the Cayman Islands and Luxembourg have now signed more than 12 agreements that meet the OECD standard and are considered to have substantially implemented the OECD standard for exchange of information.

9. Switzerland has now signed agreements with 4 OECD countries that provide for exchange of information to the OECD standard and has initialed agreements with at least 8 other OECD countries.

10. Singapore has signed 5 agreements that meet the standard and initialed a number of others. It has also introduced legislation intended to conform its existing treaty network to international standards.

11. Macao, China has passed legislation intended to enable it to implement the internationally agreed tax standard.

12. Austria has signed 2 agreements that meet the OECD standard and has initialed a number of others. Moreover, Austria expects to introduce legislation to its Parliament shortly to allow it to obtain access to bank information for exchange purposes.

13. The OECD’s multilateral TIEA negotiation pilot projects have produced concrete results, with jurisdictions in the Caribbean and Pacific Islands having concluded negotiations on dozens of TIEAs, some of which have already been signed and others initialed.

Mexico City was to host the OECD’s (Organization for Economic Cooperation and Development) Global Forum on Transparency and Exchange of Information. The goals of OECD and the meeting of nearly 100 member jurisdictions are to create a solid universally accepted practice and procedure definition for a fully participating peer review mechanism specifically designed to promote and monitor full implementation of globally endorsed international standards.

Many countries currently have TIEA’s (Tax Information Exchange Agreements) in place. In fact over 40 of the countries represented Mexico have such agreements. The TIEA is specific that each participating member country will be obliged to provide: information held by banks, other financial institutions, and any person acting in an agency or fiduciary capacity including nominees and trustees; and information regarding the ownership of companies, partnerships, trusts, foundations, “Anstalten” and other persons, as well as ownership information on all such persons in an ownership chain; in the case of trusts, information on settlors, trustees and beneficiaries; and in the case of foundations, information on founders, members of the foundation council and beneficiaries.

As briefly described above, this year’s goal of this GFTE was to ensure tax agreements between member countries resulting in the desired outcome. The good news, if there is such an item regarding tax, is that both participating OECD and non-OECD member countries are assisting to improve transparency and establish an efficient and effective exchange of information.

The OECD’s standard in determining the status of “positive recognition” is defined as a country that signs 12 agreements on tax information exchange that meet or exceed the Organization's standards. Countries like the Caymans Islands are now white listed by the OECD as they have recently signed their twelfth TIEA.

OECD Secretary General Angel Gurria said “what we are witnessing is nothing short of a revolution. By addressing the challenges posed by the dark side of the tax world, the campaign for global tax transparency is in full flow. We have equipped ourselves with the institutional means to continue the campaign. With the crisis, global public opinion’s expectations are high, their tolerance of non-compliance is zero and we must deliver”.

Conclusion:

The net result of the 5th Conference is for the expansion of developing more tools to assist in countermeasures against non-cooperative jurisdictions and assessing their effectiveness, on-going efforts on designing voluntary compliance programs, mutually participating with the Financial Action Task Force in determining a foundation for a more coherent framework between tax and FATF transparency standards, having the continual commitment of OECD for appraising member countries of the GFTE progress in achieving a rapid growth in the member countries of GFTE and their effective implementation of the OECD standards.

The OECD asserts that their mission is to assist member countries reign in tax evasion; while at the same time freely allowing these same member countries the latitude to compete with each other. OECD continues it assertion that they also proactively embrace tax competition, on the basis of transparency and non-discriminatory provisions, the quality of the economy and the range of services, unique or not, from country to country. OECD finally asserts its belief that all member countries are unrestricted in establishing their own tax rates and establish their own tax systems; void of any form of competition based on excessive secrecy.

As you can readily ascertain from the mission of the OECD, there exists real concerns as to the nature and degree of control and strict adherence to future OECD policies and procedures that may or may not apply equally to member countries. You need only look at the EU as it began on the 1st of November 1993 and the failures, disagreements, conflicts, deficient funding, cross boarder bickering and continual conflict of laws arguments between its member states. Even today, these problems are real and persist with no real end in sight. It will be of keen interest to watch the OECD as it continues to grow from its infancy of just nine years and continues new member country participations. The key issue is the balancing of each country’s, as well as collectively, interest in privacy, protectionism and individual rights with that of member governments’ enforcement of OECD policies and procedures to a possible point of financial and economic peril as the definition of “excessive secrecy” will be vigorously debated.

Dan Mitchell, Senior fellow from the Cato Institute and the center for freedom and prosperity reporting from Mexico has this to say about the OECD conference.

Dan's defined argument can be found here.

By Michael B. Nelson
TrustMakers.com

 

 

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