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Thursday, 9 April 2009

Tax havens must end culture of secrecy or face sanctions

Prime minister cracks down on tax abuse as he puts pressure on overseas territories to share tax and banking information

British overseas tax havens were today put under renewed pressure by Gordon Brown to end their culture of secrecy within six months or face sanctions.

The prime minister has written to all British crown dependencies and overseas territories setting them a September deadline to sign up to agreements to share tax information with the authorities.

Leaders at the G20 London summit last week pledged to crack down on the tax abuse and shadow banking through offshore jurisdictions that was central to the global financial crisis.

Today's move by Downing Street puts Britain in the unusual position, however, of threatening punitive action against its own dependencies.

The prime minister has also signaled in the correspondence he wants to tackle not just illegal tax evasion through personal offshore bank accounts, but also tax haven companies used for tax avoidance by corporations and super-rich individuals.

Such companies may comply with the letter of the law but not with its spirit. The Liberal Democrat shadow chancellor, Vince Cable, said that shrinking corporate tax receipts demanded further action. "This welcome but long overdue move is only one side of the coin. With tax revenues already under huge pressure, the government must now clamp down on businesses resident in the UK that use these tax havens purely to avoid paying billions of pounds worth of tax."

Seven British territories were named and shamed by the OECD when it published, to coincide with the G20 summit, a list of havens that had either not agreed to, or not yet implemented, its international tax standards. Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Montserrat and the Turks and Caicos were all placed on the OECD's "grey list" for failing to deliver on promises to be more transparent, despite signing up to do so, in some cases, several years ago.

The prime minister has also written to the crown dependencies of Jersey, Guernsey and the Isle of Man telling them that he expects rapid further progress to end tax and banking secrecy.

All three are on the OECD's "white list" of jurisdictions that have already implemented a number of bilateral agreements to share tax information with other authorities, but they are still used by companies engaged in tax avoidance.

Tax information exchange agreements can require tax inspectors to jump through a series of highly technical hoops to obtain information. Brown has told the dependencies that he expects them to move beyond meeting the OECD's minimum standards on co-operation to a spirit of full transparency.

Brown also ratcheted up the pressure on tax havens in a special meeting earlier this week with Michael Foot, a former inspector of banks for the Bahamas' central bank, who is to head a UK Treasury review of offshore financial centres. Foot's preliminary report on regulation of tax havens is expected before the budget.

The G20 agreement has already forced rapid concessions from tax havens.

Four countries placed on the OECD "blacklist" because they had not even agreed to share tax information have already changed their positions under the global political pressure. Costa Rica, Malaysia, the Philippines and Uruguay have now been moved to the grey list, having promised to reform.

Some countries on the OECD grey list such as Switzerland, Luxembourg, and Belgium, reacted angrily to their classification last week and accused the British and Americans of hypocrisy because so many offshore financial centres came under their control. Brown's letters now signal how far the crackdown on tax abuse has moved up the political agenda.

Tax campaigners said the speed of progress on tax havens was remarkable, although the bar for meeting OECD standards was still set very low.

John Christensen, of the Tax Justice Network, welcomed the prime minister's latest interventions as "very important indeed because they show there is now recognition of the appalling impact that tax havens have on countries, in particular developing countries.

"They also show that we are at last moving beyond tax evasion to tackling tax avoidance too."

Christian Aid called for Britain to build on the new international consensus on tax to go further. Its tax adviser Dr David McNair said: "Mr. Brown has shown real leadership in the crackdown on financial secrecy. Going further and giving poor countries access to a central database on tax information would transform their ability to target tax dodgers and claw back the billions they lose each year."

This article was first published on at 14.13 BST on Thursday 9 April 2009. It was last updated at 19.58 BST on Thursday 9 April 2009.

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