Owen, Christopher: Offshore Survey – September 2004 Supplement

OECD 2004 Progress Report on the Project on Harmful Tax Practices

The OECD reported that members had made substantial progress in eliminating harmful tax practices, by modifying or abolishing more than 30 of the 47 preferential tax regimes identified by the OECD in 2000 as potentially harmful.
According to the 2004 Progress Report on the Project on Harmful Tax Practices, issued by the OECD’s Committee on Fiscal Affairs in March, 18 regimes have been, or are in the process of being, abolished,. A further 14 have been amended so as to remove potentially harmful features, and 13 have been found not to be harmful after further examination.
Only two regimes, Switzerland’s “50/50 practice” (formerly the Administrative Company regime) and Luxembourg’s 1929 Holding Company regime, for which proposals for modification are before the Luxembourg Parliament, are to be the subject of further discussion this year. Both these countries abstained from approving the OECD’s original report on harmful tax competition in 1998.
Following criticism from non-OECD countries and a shift in US government policy under the Bush administration, the OECD modified its original criteria; low or no taxes and ring fencing were dropped, leaving lack of transparency and no effective exchange of information as the determining criteria.
The full list of the 47 potentially harmful regimes identified in 2000 and the conclusions drawn by the OECD are summarised below, grouped according to industry designation. In cases where a regime is in the process of being eliminated, the OECD has deemed it to be abolished provided that: no new entrants are allowed into the regime, a definite date for complete abolition of the regime has been announced; or where the regime was transparent and permitted effective exchange of information.

Insurance
Australia (offshore banking units) – not harmful;
Belgium (coordination centres) – abolished;
Finland (Aland captive insurance regime) – abolished;
Italy (Trieste financial and insurance centres) – abolished;
Ireland (international financial centres) – abolished;
Portugal (Madeira international business centres) – abolished;
Luxembourg (provisions for fluctuations in reinsurance companies) – amended to remove potentially harmful features;
Sweden (foreign non-life insurance companies) – abolished.

Finance and Leasing
Belgium (coordination centres) – abolished;
Hungary (venture capital centres) – not harmful;
Hungary (preferential regime for companies operating abroad) – abolished;
Iceland (international trading companies) — abolished;
Ireland (international financial service centres) – abolished;
Ireland (Shannon airport zones) – abolished;
Italy (Trieste financial services and insurance centres) – abolished;
Luxembourg (finance branch regime) – amended to remove potentially harmful features;
Netherlands (risk reserve regime for international group financing) – abolished;
Netherlands (intragroup financing regime) – amended to remove potentially harmful features;
Netherlands (finance branch regime) – amended to remove potentially harmful features;
Spain (Basque Country and Navarre coordination centres) – abolished;
Switzerland (administrative companies) – still under review.

Fund Management
Greece (mutual fund and portfolio investment companies) – not harmful;
Ireland (international financial service centres) – abolished;
Luxembourg (management companies, 1929 holdings) – still under review;
Portugal (Madeira international business centres) – abolished.

Banking
Australia (offshore banking units) – not harmful;
Canada (international banking centres) – not harmful;
Ireland (international financial service centres) – abolished;
Italy (Trieste financial service centres) – abolished;
Korea (offshore activities of foreign exchange banks) – abolished;
Portugal (external branches in Madeira business centres) – abolished;
Turkey (Istanbul offshore banking regime) – abolished.

Headquarters Regimes
Belgium (coordination centres) – abolished;
France (headquarters centres) – amended to remove potentially harmful features;
Germany (monitoring and coordinating centres) – amended to remove potentially harmful features;
Greece (offices of foreign companies) – abolished;
Netherlands (cost-plus rulings) – amended to remove potentially harmful features;
Portugal (Madeira international business centres) – abolished;
Spain (Basque Country and Navarre coordination centres) – abolished;
Switzerland (administrative companies) — under review;
Switzerland (service companies) – amended to remove potentially harmful features.

Distribution Activity
Belgium (distribution centres) – amended to remove potentially harmful features;
France (logistic centres) – amended to remove potentially harmful features;
Netherlands (cost-plus and resale minus rulings) – amended to remove potentially harmful features;
Turkey (Turkish free zones) – not harmful.

Service Centres
Belgium (service centres) – amended to remove potentially harmful features;
Netherlands (cost-plus rulings) – amended to remove potentially harmful features.

Shipping
Canada (international shipping regime) – not harmful;
Germany (international shipping regime) – not harmful;
Greece (shipping offices) – not harmful;
Greece (shipping regime law 27/75) – not harmful;
Italy (international shipping regime) – not harmful;
Netherlands (international shipping regime) – not harmful;
Norway (international shipping regime) – not harmful;
Portugal (international shipping register of Madeira) – not harmful.

Miscellaneous Activities
Belgium (ruling on informal capital) – amended to remove potentially harmful features;
Belgium (ruling on foreign sales corporation activities) – abolished;
Canada (non-resident-owned investment companies) – abolished;
Netherlands (ruling on foreign sales corporation activities) – amended to remove potentially harmful features;
Netherlands (ruling on informal capital) – abolished;
United States (foreign sales corporation regime) – abolished.

The OECD reviewed a number of new regimes introduced since 2000. The Netherlands’ advance pricing agreement/advance tax ruling practice and the Belgium advance tax rulings practice were examined and found not to be harmful.

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