OECD warns on tax threat

The OECD believes that the opportunities created by the globalisation of the financial services sector is a threat to democracy. Rich individuals and successful multinationals can organise their affairs so that they pay minimal amounts of tax through the use of low-tax regimes, while availing of all the advantages of the high-tax regimes whose tax codes they manage to avoid. The phenomenon could grow to be a threat to the ability of some jurisdictions to implement their fiscal policies.

For poor and developing countries, the effects of these sort of "tax strategies" are already catastrophic. Oxfam estimates that the Revenue loss to such countries could be equal to the entire global aid budget.

The offshore locations targeted by the OECD believe the campaign against tax havens is in part motivated by jealousy of the success of these locations, and determination to come to the aid of their own financial services sectors. Regimes such as the Cayman Islands believe they can continue to prosper through the implementation of high standards in a context of low or non-existent tax rates. They tend to put a heavy emphasis on the sovereign right to set tax policy.

In June 2000 the OECD issued a report on harmful tax strategies that identified a number of what it called tax havens. The Cayman Islands was not listed because of a commitment it gave to embrace what the OECD called "international tax standards for transparency, exchange of information and fair tax competition".

The Cayman Islands has committed to the exchange of information for criminal tax matters from December 2003, and for civil and administrative tax matters from December 2005. The commitments represent a "clear change in policy", according to an OECD spokeswoman.