An arbitrary minimum number set at 12 was used to determine whether the jurisdiction had ubstantially implemented the nternationally agreed tax standard Those that had not reached this level were given a deadline of March 2010 to ink the additional agreements or else once again (as in 2001) threatened with multi-lateral sanctions from the OECD members. As a result nearly all rushed out to sign a bunch of agreements with over 500 bilateral tax related agreements being signed between September 2009 and the end of June 2010. The March deadline has come and gone without any sanctions (again as in 2001) even though several jurisdictions do not yet meet the minimum criteria. According to the updated list released on 28 June by the OECD, after the recent G20 meeting in Toronto over the prior weekend, only Belize, Cook Islands, Liberia, Marshall Islands, Montserrat, Nauru, Niue, Panama and Vanuatu have yet to reach the minimum 12 agreements. Those listed as ther financial centers which have yet to reach the level of 12 such agreements are Brunei, Costa Rica, Guatemala, Philippines and Uruguay. While all may seem quiet, there is much still going on behind the scenes. The official statement coming out of the Toronto G20 meeting held 26-27 June 2010 emphasizes that the focus will now shift to another program in place know as the eer Review Process whereby 91 OECD members and non-OECD olunteer members are participating. These reviews are being carried out over at least a three year period in two phases: assessment of the legislative and regulatory framework (phase 1) and assessment of the effective implementation in practice (phase 2). Phase 1 is in progress and is scheduled to be completed by September of this year. Phase 2 will include site visits by peers visiting each country and is scheduled to continue for several years beyond this period. During this time there are certain to be more bilateral agreements, changes in legal and regulatory framework as this is the goal of the process. Fueling those skeptical about the true intentions and goals of this whole process, there are already papers coming out of the OECD regarding the methodology and scoring criteria saying that the same criteria will not be applied to each jurisdiction. We will have to wait and see if the major OECD powers such as the USA and UK will conveniently face less stringent criteria than a much smaller and powerless island jurisdiction. Indeed, each time the US Government is pressed about its own ffshore centers (Delaware, Nevada, Wyoming, etc.) they conveniently reply that the federal government cannot force the states to change their laws.
Tax fraud
It is also important to note the changing terminology coming out of the OECD members driving this movement. What was once only focused on tax fraud and tax evasion, both of which are rightfully illegal, has now shifted to ax avoidance (which is legal). In fact, tax evasion and tax avoidance are now often used interchangeably in an attempt to skew the clear line between tax evasion and tax avoidance. The latest example of this is the 28 June 2010 OECD document penned by Jeffrey Owen entitled Promoting Transparency and Exchange of Information for Tax Purposes The first sentence reads ax avoidance and tax evasion threaten government revenues throughout the world as if they are the same thing. The good news is that when the context shifts to tax avoidance, even the OECD membership begins to fracture as many of the smaller and lower tax members begin to worry that they will become targets themselves. Another notion that is resurfacing is that of utomatic EOI between countries to help support domestic tax authorities of the high tax, entitlement-laden western OECD member nations. EOI on request is something that is now widely accepted, but the idea of automatic EOI is one that has much less support. While only now resurfacing with any seriousness, this was included in the first draft of the 1998 report armful Tax Competition: an Emerging Global Issue so it is not new. It was quickly removed as most viewed it as too radical at the time and changed to OI on request so as not to derail the movement. Many suspect this has remained the goal from the beginning however. At a minimum, readers should also be aware that there will also be an increasing focus on ubstance over form concerning international structures where it relates to tax residency and the potential for legal tax avoidance. This will place a premium on financial services firms with qualified personnel and the infrastructure to meet these increased requirements.
