This marked a “very, very substantial
transformation of the landscape” in tackling global tax evasion and
avoidance, OECD secretary general Angel Gurría declared.

In recent weeks, there has been a stampede of
jurisdictions agreeing to share tax information to avoid being
blacklisted by the G20, including Luxembourg, Switzerland, Austria,
Liechtenstein, Monaco, Andorra, and Singapore. They have been moved
on to a “grey list” of countries that have pledged to implement tax
standards but have not yet done so.

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China is on a third “white list” of
jurisdictions that have substantially implemented the
internationally-agreed tax standards, after a clash at the G20
summit with France and some other nations over the status of Hong
Kong and Macau. The OECD said these two Special Administrative
Regions had so far only “committed to implement” the
internationally agreed tax standard.

$7trn held offshore

An estimated $7 trillion of assets are held
offshore and, according to pressure group Tax Justice Network,
developed countries lose $180 billion a year through tax
evasion.

Under the OECD definition, countries will be
considered non-compliant if they have less than 12 bi-lateral
agreements to exchange tax information with foreign governments on
request.

But while the G20 agreed to take sanctions
against unco-operative jurisdictions, it is not clear how tough
retaliation against any future rogue tax havens will prove in
reality. Despite hard lobbying by the French and German governments
for stronger regulation, no measures have actually been agreed.

Six proposals are being “considered”, namely;
increased disclosure requirements by companies and individuals
using tax havens; withholding taxes on transactions with tax
havens; bans on the use of interest paid in a blacklisted country
to offset tax; reviews of tax treaty policy; putting political
pressure on global companies to withhold investment to a haven; and
a reduction in aid.

France which, along with Germany, has been
leading the charge against havens like Switzerland and
Liechtenstein, wants to go even further. French Finance Minister
Christine Lagarde said another option would be for national
regulators to increase capital requirements for domestic banks that
do business in centres with loose financial and fiscal regulation
to compensate for the additional risk.

Guernsey, Jersey and the Isle of Man made it
onto the OECD white list, due to their conclusion of a number of
tax information agreements with other nations, and were commended
by the Paris-based agency. The Isle of Man recently signed an
agreement with France, bringing its tally to 14, of which 12 are
with OECD countries. Jersey signed agreements with France and
Ireland, while Guernsey signed agreements with France, Germany and
Ireland, bringing their tallies to 13 each, including in both cases
11 with OECD countries.

Later this month, Michael Foot, a former
inspector of banks for the Central Bank of the Bahamas, is to
publish his independent review of British offshore financial
centres, including the Channel Islands and the Isle of Man.

Predictably enough, Switzerland hit back at
its inclusion in the OECD grey list, with the finance ministry in
Bern declaring that the list “does not specify the criteria on the
basis of which it was drawn up. Switzerland is not a tax
haven.”

In a landmark move, Switzerland officially
decided on 13 March to ease the country’s banking secrecy and fully
adopt OECD tax standards. It is also due to start negotiations with
the US and some other countries to strengthen tax co-operation.

The US is however maintaining pressure on
Switzerland. Federal authorities have just arrested a wealthy
American client of UBS, chartered accountant Steven Michael
Rubinstein, on tax evasion charges. This follows the criminal
investigation of UBS for allegedly helping thousands of wealthy
Americans evade taxes through secret offshore accounts that weren’t
reported to the Internal Revenue Services.

UBS admitted in February to conspiracy to
defraud the IRS by helping scores of wealthy Americans hide nearly
$20 billion overseas, paying $780 million to settle the
charges.

Within senior Swiss private banking circles,
it is being stressed that the country’s long-standing offshore
private banking business will remain intact.

Bank-client confidentiality ‘will
remain’

Dieter A Enkelmann, Julius Baer’s CFO, has
declared that Swiss bank-client confidentiality and the protection
of personal privacy including financial privacy for foreign and
domestic clients in Switzerland “will remain in place”.

Crucially, there will be no automatic exchange
of information with foreign authorities the banker, giving an
investor presentation, said. An exchange of information will only
be enforced in individual cases where there is “a reasonable and
sufficiently qualified suspicion” that a tax offence has been
committed.

Enkelmann stressed that there will be a level
playing field internationally as territories such as Austria,
Belgium, Luxembourg, Liechtenstein, Singapore and Hong Kong have
announced a similar decision to comply with the same rules.

He added: “Switzerland’s offer will be subject
to a number of conditions including the non-retroactive effect of
the new regime and the provision of transition terms allowing
clients to orderly regularise their tax affairs under the new
regime via tax amnesties or similar measures.”

The OECD itself supported the position of
Switzerland and some other jurisdictions against the wholesale
disclosure of client data.

Asked why the Swiss government still
maintained that it would preserve banking secrecy even though it
had committed to the OECD agreements, officials of the Paris-based
agency said exchanging tax information did not mean countries could
embark “on fishing expeditions” for details about the tax affairs
of residents of other countries.