Towards Global Tax Co-operation - OECD

1 Towards Global Tax Co-operationREPORT TO THE2000 MINISTERIAL COUNCIL MEETINGAND RECOMMENDATIONSBY THE COMMITTEEON FISCAL AFFAIRSP rogress in Identifying and Eliminating Harmful Tax PracticesORGANISATION FOR economic Co-operation AND DEVELOPMENTORGANISATION FOR economic CO-OPERATIONAND DEVELOPMENT Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960,and which came into force on 30th September 1961, the organisation for EconomicCo-operation and Development (OECD) shall promote policies designed: to achieve the highest sustainable economic growth and employment and arising standard of living in Member countries, while maintaining financialstability, and thus to contribute to the development of the world economy; to contribute to sound economic expansion in Member as well as non-membercountries in the process of economic development.

2 And to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international original Member countries of the OECD are Austria, Belgium, Canada,Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, theNetherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the UnitedKingdom and the United States. The following countries became Memberssubsequently through accession at the dates indicated hereafter: Japan(28th April 1964), Finland (28th January 1969), Australia (7th June 1971), NewZealand (29th May 1973), Mexico (18th May 1994), the Czech Republic(21st December 1995), Hungary (7th May 1996), Poland (22nd November 1996)and Korea (12th December 1996).

3 The Commission of the European Communitiestakes part in the work of the OECD (Article 13 of the OECD Convention).Publi en fran ais sous le titre :VERS UNE COOP RATION FISCALE GLOBALERAPPORT POUR LA R UNION DU CONSEIL AU NIVEAU DES MINISTRES DE 2000ET RECOMMANDATIONS DU COMIT DES AFFAIRES FISCALESPROGR S DANS L IDENTIFICATION ET L LIMINATION DES PRATIQUES FISCALES DOMMAGEABLES OECD 2000 Permission to reproduce a portion of this work for non-commercial purposes or classroomuse should be obtained through the Centre fran ais d exploitation du droit de copie (CFC),20, rue des Grands-Augustins, 75006 Paris, France, Tel. (33-1) 44 07 47 70, Fax (33-1) 46 34 67 19,for every country except the United States.

4 In the United States permission shouldbe obtained through the Copyright Clearance Center, Customer Service, (508)750-8400,222 Rosewood Drive, Danvers, MA 01923 USA, or CCC Online: Allother applications for permission to reproduce or translate all or part of this book should bemade to OECD Publications, 2, rue Andr -Pascal, 75775 Paris Cedex 16, France. 3 OECD 2000 Table of ContentsTable of 3 Executive Summary .. 5I. Introduction .. 8II. The Review Process .. 9A. Process of Reviewing Member Country 9B. Process of Reviewing Jurisdictions under the Tax Haven Criteria .. 10 III. Evaluations and Follow-Up 12A. Member Country Preferential 12B. Tax Haven 16C. Dynamic Nature of the Evaluations of Preferential Regimes and Tax Havens.

5 20D. Extending the Dialogue with Co-operative Jurisdictions .. 20IV. Involving Non-Member 22V. Framework for Implementing a Common Approach to RestrainingHarmful Tax Practices .. 24VI. The Resource Implications for the OECD .. 27 5 OECD 2000 EXECUTIVE SUMMARYFor a Global economy to succeed, governments must intensify their co-opera-tion and provide international frameworks for the effective management of globalissues. Taxation is no exception. In this context, the OECD in 1998 established aninternational framework to counter the spread of harmful tax competition by adopt-ing its Report, Harmful Tax Competition: An Emerging Global Issue (the 1998 Report ).1 Ministers in 1998 welcomed this Report and mandated OECD to pursue the goal is to secure the integrity of tax systems by addressing the issues raised bypractices with respect to mobile activities that unfairly erode the tax bases of othercountries and distort the location of capital and services.

6 Such practices can alsocause undesired shifts of part of the tax burden to less mobile tax bases, such aslabour, property, and consumption, and increase administrative costs andcompliance burdens on tax authorities and taxpayers. It is important to note at the outset that the project is not primarily about col-lecting taxes and is not intended to promote the harmonisation of income taxes ortax structures generally within or outside the OECD, nor is it about dictating to anycountry what should be the appropriate level of tax rates. Rather, the project isabout ensuring that the burden of taxation is fairly shared and that tax should notbe the dominant factor in making capital allocation decisions.

7 The project isfocused on the concerns of OECD and non-OECD countries, which are exposed tosignificant revenue losses as a result of harmful tax competition. Tax base erosionas a result of harmful tax practices can be a particularly serious threat to the econ-omies of developing countries. The project will, by promoting a co-operative frame-work, support the effective fiscal sovereignty of countries over the design of theirtax counter harmful preferential tax regimes, the Recommendations adopted withthe 1998 Report provide a set of Guidelines and a timetable for OECD member coun-tries to identify, report, and eliminate the harmful features of their preferential also provide for a dialogue with non-member economies on how they wouldapply the Guidelines.

8 To counter the spread of tax havens, the Recommendations1. The Report was approved by the OECD Council, with abstentions from Luxembourg andSwitzerland, on 9 April 1998, and was presented to Ministers on 27/28 April Global Tax Co-operation 6 OECD 2000provide for the Forum to identify jurisdictions that meet specified criteria for beingtax havens. The 1998 Report also sets out a general framework for a commonapproach to defensive measures for restraining harmful tax Report to Ministers outlines the results obtained up to date of the Forum swork in these areas. It includes, in particular:a)an identification of potentially harmful preferential regimes in Membercountries under the factors of the 1998 Report;b)an identification of jurisdictions meeting the criteria for being tax havensunder the factors of the 1998 Report; andc)an update on work with non-member economies and proposals for takingthis work initial reaction to this project has been encouraging.

9 A number of jurisdic-tions reviewed under the tax haven criteria and also a number of non-membereconomies have shown an interest in the project, resulting in an open , this reporting is not intended to be condemnatory or final, as the pro-cess is open and dynamic; it aims to move forward co-operatively so long as aco-operative approach bears fruit. Member countries are already working to elimi-nate harmful tax practices, and many jurisdictions meeting the tax haven criteria areactively considering taking a commitment within the next 12 months to eliminateharmful tax practices in accordance with the 1998 Report. To take forward the work, this Report includes proposals by the Committee onFiscal Affairs (the Committee ) on the follow-up for preferential regimes, forjurisdictions meeting the tax haven criteria, and for non-member economies.

10 With regard to the preferential tax regime work, the Committee has endorsedthe development on a generic basis of guidance on applying the preferentialregime criteria of the 1998 Report to the categories and types of preferentialregimes that are represented among the regimes identified as potentially Forum will work directly and where appropriate through other subsidiary bod-ies of the Committee in developing the guidance (application notes). The applica-tion notes will assist Member countries in determining which of their potentiallyharmful regimes are, or could be applied to be, actually harmful, and then in deter-mining how to remove the harmful features of such harmful regimes.