Regional talks on harmful tax competition

Ministers and officials from seven Pacific Island Forum countries listed by the Organization for Economic Cooperation and Development (OECD) as ‘tax havens’, met in Suva, Fiji April 24-28, 2001 to discuss the OECD’s Harmful Tax Competition Initiative.

The Ministers and officials from Cook Islands, Nauru, Niue, Republic of Marshall Islands, Samoa, Tonga and Vanuatu were joined by representatives from Australia, New Zealand and the OECD Secretariat.

The OECD Initiative was developed in response to OECD concerns regarding the supposed erosion of their tax bases through mobile financial activities offered by offshore financial centers.

The Initiative has seen OECD nations request 35 jurisdictions, regarded as tax havens, to commit to changes to the operation of their offshore financial centers, which the OECD feels would draw back lost capital to OECD nations.

A July 31, 2001 deadline for this commitment has been set by the OECD, with the imposition by OECD members of ‘defensive measures’ on ‘non-cooperative’ listed jurisdictions being supported by the OECD.

“The visit to the region by OECD representatives has improved their understanding of the vulnerable situation of these Pacific nations,” said the Acting Secretary General of the Pacific Islands Forum Secretariat, Mr. Iosefa Maiava.

“This David and Goliath standoff sees the 30 OECD nations (including the richest, most developed countries in the world – United States, Japan, Germany and the United Kingdom) in negotiation with the seven listed Pacific nations.

“The seven listed Pacific nations have a combined GDP of around US$ 1 billion, compared to Australia’s annual GDP of around US$ 300 billion, and they have a total population barely one eighth that of Sydney. Niue, the smallest nation, has a population of only 1,800 and an annual government budget of around NZ$ 20 million.”

“These nations do not have the resources of OECD members to address the issue of harmful tax competition. This position is not helped by the trade deficits the Pacific islands have vis-à-vis most OECD nations and the need to balance these against the income from the offshore centers, which can comprise 8-10 percent of GDP. Such factors have hampered the ability of the listed nations to negotiate on an equal standing with the OECD,” Mr. Maiava said.

The meeting schedule provided an opportunity for the listed countries to hear an update of activities undertaken internationally to progress their concerns with the OECD, as well as efforts by the Forum Secretariat to reach a negotiated agreement which recognizes the concerns of both developed and developing countries.

The seven listed Pacific countries developed a regional position statement clearly outlining their concerns with the OECD Initiative, expressing their desire for good-faith negotiations to arrive at an agreement which will remove the threat of defensive measures by OECD nations.

The listed nations attended bilateral meetings with the OECD, where country-specific concerns, as well as technical questions regarding the impact of the initiative and implementation issues, were raised.

The event concluded with a joint meeting between the listed nations and OECD representatives to discuss general outcomes of the bilateral meetings and the path forward in the light of the 31 July 2001 deadline.