In a blog article posted on March 29, I noted that the OECD had removed Panama from the list of jurisdictions committed to implementing the Common Reporting Standard (CRS) after that country attached, what the OECD regarded, as unacceptable conditions to its previous commitment.
Just five days later, the "Panama papers" story broke. Stung by the ensuing criticism, Panama has now reaffirmed its support for the CRS, and last week the country was restored by the OECD to its list of committed jurisdictions. The three other jurisdictions that had hitherto not committed to the CRS despite being asked to do so—Bahrain, Nauru and Vanuatu—were also added to the OECD's "good boy" list at the same time.
This leaves the United States sticking out like a sore thumb in not signing up to the emerging global regime for automatic exchange. By relying instead on FATCA, the US has opened itself up to the charge of double standards because of the lack of reciprocity in its FATCA IGAs in respect of the disclosure of information on beneficial ownership.
The U.S. government is acutely aware of the imbalance in the current FATCA regimes. In the Model 1 IGAs, it “acknowledges the need to achieve equivalent levels of reciprocal automatic information exchange”, and commits “to further improve transparency and enhance the exchange relationship [with its partners] by pursuing the adoption of regulations and advocating and supporting relevant legislation to achieve such equivalent levels of reciprocal automatic exchange”.
To that end, in a letter to Congress on May 5, U.S. Treasury Secretary Jack Lew urged legislators to enact longstanding proposals by the administration to provide “full reciprocity under FATCA”, so as to “ensure that the United States can live up to its end of the bargain on foreign tax reporting”. On the same day, the Treasury announced that it would be sending legislation to Congress requiring companies, on their creation, to report beneficial ownership information to the Treasury. Hardly anyone, however, expects the proposed legislation to make much headway.
We can therefore expect more allegations of hypocrisy, like those made last week by the Premier of the Cayman Islands, Alden McLaughlin, at an inter-governmental anti-corruption conference in London. “If those countries with real political clout on the world stage continue to focus only on jurisdictions that are smaller in size, while ignoring obvious jurisdictions that ought to be part of the conversation, the result will be continued failure,” he said. “To seriously tackle corruption and not just pay lip service to it we in this room must be committed to a standard that is truly global and to put behind us the shades of hypocrisy which are part and parcel of the global discussion of this issue for years and years.”
At the same conference, the Chief Minister of the Isle of Man, Allan Bell, attacked the opacity of the corporate regimes of some U.S. states. Referring to President Obama’s well-known observation about 19,000 companies being registered in a single building in the Cayman Islands, Bell claimed that there “is one building in Delaware which has 285,000 companies registered in that one building and they don't know the beneficial owners of any of them. That's 10 times the total number of companies we have in the Isle of Man and we know the beneficial owners of all of them.”
It is in this context that we should place the call made on May 11, by theGreen/European Freedom Alliance group in the European Parliament, for the EU to “carefully scrutinise the U.S.” in creating its proposed blacklist of tax havens. “As a result of its tax regime(s), the US is getting more and more attractive as a tax haven for the world's wealthy elite”, said the Greens’ spokesperson on tax, Molly Scott Cato. “The evidence points to the U.S. becoming one of the largest tax havens and the EU should not stand by and accept this.”
The timing of the Greens’ call is significant. This week, a delegation from the European Parliament’s special committee on taxation is visiting Washington on a fact-finding mission. Its conclusions will be eagerly awaited.
By Dr Craig Rose, Technical Editor, Global Tax Guide