Langer, Marshall: Musical Chairs with Blacklists, Grey Lists and White Lists

About a decade after the OECD first began its campaign to stop harmful tax competition by some 40 jurisdictions it designated as tax havens, the OECD has begun to tighten the screws on those that do not show evidence that they are cooperating with its aims. More has happened since April 2009 than during the entire previous decade.Nearly ten years ago, the OECD began trying to obtain written commitment letters from jurisdictions it had targeted as providing allegedly harmful tax competition. In early 2009, the last three targeted jurisdictions ? Andorra, Liechtenstein and Monaco ? signed commitments and they were removed from the list of uncooperative tax havens in May 2009. Meanwhile, the OECD had expanded Article 26 (Exchange of Information) of its model income tax treaty by adding two significant paragraphs that are included in the current 2008 OECD model income tax treaty. Paragraph 26.4 requires a country to use its information gathering measures to obtain information for its treaty partner even though it does not need the information for its own tax purposes. Paragraph 26.5 requires a party to supply information held by a bank or other financial institution, a nominee, an agent or a fiduciary as well as ownership interests in an entity. Such provisions routinely appear in all recent TIEAs (tax information exchange agreements). The OECD obtained approval of its ?internationally agreed tax standard? by a UN Group of Tax Experts and by the G-20 and began to issue a series of progress reports on the jurisdictions surveyed by the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) in implementing this standard. Austria, Belgium, Luxembourg and Switzerland had initially entered reservations to Article 26 of the OECD model income tax treaty indicating that they would not include paragraph 26.5 in their treaties. They withdrew these reservations in early 2009 to avoid the threat that they would be added to a ?blacklist? of jurisdictions that have not committed to the internationally agreed tax standard. When the first such list appeared in April 2009 these countries were included on a ?grey list? of jurisdictions that have committed to the internationally agreed tax standard but have not yet substantially implemented it. All four of these countries thereupon began a crash campaign to sign fully-compliant protocols and TIEAs with at least a dozen other jurisdictions. They have recently been promoted from the ?grey list? to the ?white list.? At least one of the agreements signed by Switzerland will be the subject of a referendum in which the agreement can be accepted or rejected by the Swiss people.The April 2009 OECD progress report ?blacklisted? Costa Rica, Malaysia (Labuan), the Philippines and Uruguay. The ?grey list? named 38 jurisdictions, including 30 tax havens and eight other offshore centres. All 38 were designated as jurisdictions ?that have committed to the internationally agreed tax standard, but have not yet implemented? that standard. Forty other jurisdictions were included on a ?white list? of jurisdictions that have substantially implemented that standard. All but ten ?white-listed? jurisdictions are members of the OECD, the G-20 or both. The US Virgin Islands was ?white-listed,? apparently because it is a party to all US TIEAs and because the IRS routinely furnishes US Virgin Islands tax information to US tax treaty partners. Shortly after the first progress report was published, the OECD reported that all four of the ?blacklisted? countries had committed to the ?internationally agreed tax standard? and that they had therefore been elevated to the ?grey list.? They remain there, and none of them has yet signed more than one agreement meeting the required standard. The OECD subsequently issued numerous updates to its progress report and it apparently intends to continue doing so regularly as more and more ?grey-listed? jurisdictions sign at least 12 compliant tax agreements. As this column is written, the latest OECD updated progress report is dated 25 September 2009. Twelve jurisdictions named on the initial ?grey list? have since been elevated to the ?white list? after signing at least 12 satisfactory agreements. They are Aruba, Austria, Bahrain, Belgium, Bermuda, the British Virgin Islands, the Cayman Islands, Luxembourg, Monaco, the Netherlands Antilles, San Marino and Switzerland; four of these were added during the week preceding the G-20 Pittsburgh Summit.Four other countries were mysteriously added to the ?white list? without any indication as to why this was done. They are Estonia, Israel and Slovenia, all of which are accession candidates for OECD membership, and India which is a G-20 member. There has been no indication that any of these has actually signed agreements meeting the OECD-prescribed tax standard. There are currently 56 jurisdictions on the ?white list,? 30 on the ?grey list? and none on the ?blacklist.?