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Countering Offshore Tax Evasion: Some Questions and Answers

The OECD on 28 August issued a document to clarify its approach to counter tax evasion.


A couple of paragraphs are worth being quoted:


[The experts the OECD’s Committee on Fiscal Affairs and the Global Forum have suggested that] a good indicator of progress is whether a jurisdiction has signed 12 agreements on exchange of information that meet the OECD standard. This threshold will be reviewed to take account of (i) the jurisdictions with which the agreements have been signed (a tax haven which has 12 agreements with other tax havens would not pass the threshold), (ii) the willingness of a jurisdiction to continue to sign agreements even after it has reached this threshold and (iii) the effectiveness of implementation. 


In 1998 the OECD set out a number of factors for identifying tax havens.

The four key factors were:

1) No or nominal tax on the relevant income;

2) Lack of effective exchange of information;

3) Lack of transparency;

4) No substantial activities.

No or nominal tax is not sufficient in itself to classify a country as a tax haven.

The fourth factor above “no substantial activities” was not considered when determining whether a jurisdiction was cooperative. Thus, in order to avoid being listed as an uncooperative tax haven, jurisdictions which met the criteria were asked only to make commitments to implement the principles of  transparency and exchange of information for tax purposes.


The key principles of transparency and exchange of information for tax purposes can be summarised as follows:

• Exchange of information on request where it is “foreseeably relevant” to the administration and enforcement of the domestic laws of a treaty partner.

• No restrictions on exchange caused by bank secrecy or domestic tax interest requirements.

• Availability of reliable information, particularly accounting, bank andownership information and powers to obtain it.

• Respect for taxpayers’ rights.

• Strict confidentiality of information exchanged 


First, tax information received from another country can only be used for the purposes stated in the agreements. Second, a country is free to decline a request for information in a number of situations. One reason for declining to provide information relates to the concept of public policy/ordre public. “Public policy” generally refers to the vital interests of a country, for instance where information requested relates to a state secret. A case of “public policy” may also arise, for example, where a tax investigation in another country was motivated by racial or political persecution.


The OECD does not have power to impose sanctions on countries that do not implement the standards. Individual countries whether OECD or nonOECD will decide for themselves what actions they consider necessary to ensure the effective enforcement of their tax laws. The G20 has produced a list of potential measures based upon an analysis provided by the OECD. The OECD will continue to provide a forum where countries can discuss how to make these measures more effective.




In a nutshell, the OECD admits that


1) there are loopholes for a given jurisdiction to decline a request for information and its decision is discretionary,

2) it does not have power to impose sanctions on countries that do not implement the standards.




Those who believe that the signature of agreements based on the OECD thax model is the panacea to counter tax evasion are very naive. Aren’t they?


15:09 Posted in General | Permalink | Comments (0)

Whistle blowing always leads to a dead end

In this blog I have expressed several times that I do not agree with whistle blowing despite it is promoted by international organizations like GRECO or OECD : whilst the OECD Convention on bribery does not impose specific obligations regarding whistle blowing the OECD monitoring procedures identify reporting mechanisms and whistle blower protection as relevant factors for detecting and deterring bribery.


Whistle blowing is based on internal information that is communicated and therefore is clearly a breach of loyalty. There are many public and official facts in the jurisdictions that allow to trace both a lax attitude and a support to professionals that do not comply with professional standing. I have decided to focus on these and I refuse any information that is not public or official I could be sent.

The definition of corruption is large enough to include those who organize huge banking schemes to facilitate tax evasion.


The UBS tax scandal in the USA started with Bradley Birkenfeld, who acted as a whistleblower. This guy was sent to jail for facilitating offshore tax evasion through UBS banking schemes, despite assisting federal investigators in exposing the secretive bank whereas it was agreed between the USA and UBS that UBS would disclose 4,450 client names instead of the 52000 targeted.


A couple of days later President Barack Obama played the golf with Robert Wolf, president of UBS Investment Bank and chairman and CEO of UBS Group Americas. Wolf, an early financial backer of Obama's presidential campaign, raised $250,000 for him back in 2006, and in February was appointed by the president to the White House's Economic Recovery Advisory Board.



There is all but an happy end for whistleblowers and I did not read any support  for Bradley Birkenfeld from the OECD or the GRECO, those organizations that promote what he did.


I think these organisation are neither trustable nor reliable as they are upset when one reports red flags from public and official sources. So how can they actually support the reporting of information that is more confidential ?



07:22 Posted in General | Permalink | Comments (1)


Fight against tax fraud: Commission proposes measures for a more efficient cooperation between tax authorities

In the framework of its strategy to combat tax evasion and fraud ( IP/06/697 ), today the European Commission adopted a proposal for a recast of the Regulation on administrative cooperation in the field of valued added tax, extending and reinforcing the legal framework for the exchange of information and cooperation between tax authorities. One of the key elements of the proposal is the creation of a legal base to set up Eurofisc: a common operational structure allowing Member States to take rapid action in the fight against cross border VAT fraud. The Commission today also adopted a report on the functioning of the administrative cooperation.

László Kovács, Commissioner for Taxation and Customs, said: "In the current economic situation it is more important than ever to fight tax fraud efficiently and a fully functioning administrative cooperation between tax administrations is key in that respect. My objective is to ensure that tax authorities have all technical and legal means to take action against European Union wide VAT fraud and to ensure that each tax administration is prepared to protect other Member States' tax revenue as effectively as their own."


One of the most novel elements in the proposal is the creation of Eurofisc. It is set out to be an operational structure where Member States will in practice, fight fraud together. It should allow a very fast exchange of targeted information between all Member States as well as the setting up of common risk and strategic analysis. This will enable Member States to react timely to stop fraud and catch fraudsters, making it more difficult for new fraud schemes to emerge and spread around the Community

Joint responsibility for the protection of tax receipts

The proposal changes the approach of the protection of VAT revenues. In addition to giving Member States tools to cooperate more closely and to exchange information faster, the Recast regulation sets out that Member States are jointly responsible for the protection of VAT revenues in all Member States.

Direct access to databases

Tax authorities store a large amount of information regarding their own taxpayers in their databases; rapid access to this information can be very useful to other Member States in order to detect cross-border fraud schemes. The proposal grants tax authorities of other Member States a direct access to a defined set of information contained in these databases.

Quality of data

The proposal contains a framework to ensure the quality, comparability and usability of the information contained in national databases. It includes rules on registration, deregistration and rules on initial and regular risk analysis processes.

Information to taxpayers

In order to prevent them from being caught involuntarily in fraud schemes, taxpayers will benefit from an enhanced and secure system of validation of their counterparts' VAT number and identity. This will significantly increase the legal certainty of their business environment when making intra-community supplies.

Report on the functioning of administrative cooperation

The report drafted according to article 45 of Council Regulation 1798/2003 in cooperation with Member States is the first report since the entry into force of the Regulation. It outlines areas where administrative cooperation is functioning well and points out areas for improvement. Its conclusions have been taken into account in the proposal for the recast of the Regulation.


Read PR IP/09/1239

COUNCIL REGULATION on administrative cooperation and combating fraud in the field of value added tax

Report on the application of Council Regulation (EC) no 1798/2003 concerning administrative cooperation in the field of value added tax

18:19 Posted in General | Permalink | Comments (0)