Ireland has been cited five times for "potentially harmful" preferential tax practices in a report issued at an Organisation of Economic Co-operation and Development (OECD) summit here yesterday.
Inclusion on the list implies unfair advantage over other OECD members, not legal wrongdoing. The International Financial Services Centre (IFSC) accounts for four of the five preferential Irish tax regimes listed, in the fields of insurance, financing and leasing, fund managers and banking. The Shannon Airport Zone was also listed as a potentially harmful tax regime under the financing and leasing heading.
Ireland does not appear on the more damning list of 35 tax havens, which was also published in Towards Global Tax Co-operation; Progress in Identifying and Eliminating Harmful Tax Practices. Most of the 35 are small islands in the Caribbean and South Pacific.
Embarrassingly for leading OECD nations, seven of the tax havens (British Virgin Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Montserrat and Turks & Caicos) are British overseas territories or dependencies. The US Virgin Islands are an external territory of the US, and France helps to finance and govern the tax haven of Monaco.
It has taken the OECD four years to draw up its list of tax havens, which was published only a few days after its Financial Action Task Force accused 15 countries - including Russia, Israel, Lebanon and Liechtenstein - of complicity in money laundering. The tax havens have been given until July 31st 2001 to convince the OECD that they will stop sheltering untaxed foreign monies by the end of 2005.
If they fail to do so, the OECD has threatened to draw up a list of "defensive measures" such as penalties on transactions with tax havens, none of which are legally binding.
Yet despite the OECD's lack of teeth, Mr Gabriel Makhlouf, the chairman of the OECD's Committee on Fiscal Affairs and Britain's Director of International Inland Revenue, told a press conference that his committee's report was "a landmark achievement foreshadowing a new, more global international tax community . . . a new era that fosters trust and co-operation between tax authorities; where the honest taxpayer will not be asked to bear the tax avoided by dishonest taxpayers".
Mr Tom Kitt, the Minister for Labour, Trade and Consumer Affairs, stressed the word "potentially" when responding to Ireland's inclusion on the list of 47 harmful tax regimes within the OECD. "We have no problem with all these policies being looked at," Mr Kitt said. "We would argue very strongly that these (preferential tax regimes) are very central to our economic development."
The OECD will now draw up guidance to help Ireland and other countries on the list to "determine whether their potentially harmful regimes are actually harmful in practice".
If the IFSC and Shannon Airport Zone are found guilty, they will have until April 2003 to reform. But Mr Jeffrey Owens, the head of Fiscal Affairs at the OECD, seems optimistic. "Our report is very consistent with the Irish point of view," he said. "No tax harmonisation. No attempt to set minimum tax rates. Let each country set its own rate. Ireland is moving towards a 12 per cent regime. Ireland has a transparent regime. It co-operates on the exchange of information."
Hardline economic liberalism is definitely out of fashion at the OECD summit; concern for developing countries is in. Mr Makhlouf also noted that tax havens and harmful tax competition threaten poor countries. He cited a June 23rd Oxfam report that estimated developing countries lose $50 billion each year to tax havens - the equivalent of all the development aid given throughout the world.
Mr Luc Cortebeeck, a vice president of the international trade union group TUAC, told the meeting that "what is needed is a fundamental rethink by governments of the desirability of the unregulated, deregulated global marketplace". Globalised markets must mean that workers enjoy the same rights throughout the world, he said.
Discussing Ireland's priorities for the resumption of World Trade Organisation (WTO) negotiations (probably late in 2001), Mr Kitt said that Ireland has contributed $2.5 million to a WTO legal centre in Geneva to help the 48 Least Developed Countries (LCDs). Ireland has strongly supported the EU's demand for global duty-free access for goods from the LDCs - which in any case represent less than 0.25 percent of world trade.
In line with EU policy, Ireland is also campaigning for an institutional link between the International Labour Organisation and the WTO which would establish worldwide labour regulations.
Mexico's threat to block a revised set of guidelines for multinational companies is the main source of suspense at the meeting. The non-binding guidelines are intended to fight the perception that multinationals are secretive and flout international labour, pollution and corruption standards. But Mexico fears the agreement could discourage foreign investment.
