WTO protection for Caribbean offshore centres?

WTO Headquarters. (File photo)

BRIDGETOWN, Barbados, June 11, 2009 – Business consultant and former diplomat Sir Ronald Sanders has suggested that Caribbean countries should band together against any effort by the United States to clamp down on their offshore sectors and take their grievances straight to the World Trade Organisation (WTO).

Just last month the Obama administration indicated that it would seek to curb the use of so-called "offshore tax havens," and has supported bills aimed at stopping tax shelter abuses. The American government said it would raise about US$210 billion in revenues over the next 10 years by doing so.

But Sir Ronald, responding to questions posed by the Inter-American Dialogue bi-weekly publication, said the efforts by the US as well as other leading members of the Organisation for Economic Cooperation and Development (OECD) may displace offshore business “to jurisdictions with more political muscle like Hong Kong and Singapore”. 

“Such action will be viewed in the Caribbean as discriminatory and unfair. Offshore jurisdictions service legitimate demands of individuals and corporate entities in developed countries that wish to take advantage of better fiscal and legal structures in the offshore centers of their choice,” he said. “US corporations should resist attempts to restrain their trade, and affected Caribbean jurisdictions should test any such restraint by collectively filing formal complaints at the WTO."

Sir Ronald said the matter strikes at the heart of international trade rules, particularly where all countries have a right to compete on a level playing field, with the WTO as “referee”.

He said that such international trade includes financial and legal services that enable individuals and corporations to conduct their financial activities from offshore jurisdictions within the legal framework of the countries involved, including their home country.

“The issue is not about regulation but about global free trade. The majority of business conducted through offshore centres is legal in the country of origin of the investors, taking advantage of the benefit of the originating country's tax breaks and special provisions that have built up over generations of home country tax bills, often intended to serve some particular interest,” Sir Ronald noted.

The US and other OECD countries have made much noise recently about regional countries being tax havens.

Just after leaders of the world's largest economies, at their G20 Summit in London, agreed on tough standards for financial regulation and punishment for those who fail to comply, the OECD released a list of countries on a white list - which gives credit to 40 jurisdictions that "have substantially implemented the internationally agreed tax standard"; those on a gray list that have committed to the internationally agreed tax standard but have not yet substantially implemented it; and the dreaded black list.

Barbados and the United States Virgin Islands were the only two Caribbean countries initially on the OECD white list of 40 nations, but Bermuda was this week also placed in that category after it signed a Tax Information Exchange Agreements (TIEA) with the Netherlands. It was the country’s 12th such agreement with a foreign country.

The other Caribbean nations were among the 30 on the gray list.

Many of them have indicated they are working on completing TIEAs with other countries.

According to the OECD, the internationally agreed tax standard requires exchange of information on request in all tax matters for the administration and enforcement of domestic tax law without regard to a domestic tax interest requirement or bank secrecy for tax purposes. It also provides for extensive safeguards to protect the confidentiality of the information exchanged.