Philippines: Blacklist Black Eye

“The time of banking secrecy has passed,” so declared French President Nicholas Sarkozy as he referred to the agreement reached at the recently concluded G-20 summit in London to name and shame the countries, tagged as "tax havens," that refuse to exchange tax information.

This concern over so-called tax havens snowballed amidst allegations that banking secrecy and opaqueness in tax regimes have aggravated the global economic crisis by disguising the true value of some global assets and providing a refuge for illicit funds.

In addition to being shamed on the world stage, blacklisted tax havens could face tough sanctions, including the withdrawal of financing by the World Bank or International Monetary Fund.

First Came Shock, Then Doubt

I feel embarassed as a Filipino that the Philippines is among the four (4) countries blacklisted as uncooperative tax havens. After my initial shock last Thursday, however, came doubt: I know that the Cayman Islands, Bermuda, Bahamas, British Virgin Islands and Liechtenstein are popular offshore tax havens, but the Philippines...?

The Philippines may have been at the receiving end of several past unflattering labels, the latest of which is a "nation of servants," but never as a "tax haven"--until now. So, what has the country done to become one?

How Did They Draw Up The Tax List?

The G-20 had relied on the Paris-based Organization for Cooperation and Development (OECD), a 30-member grouping of industrialized countries, to come up with the tax list. According to this report, countries that had not pledged to abide by international tax reporting standards land in the blacklist. On the other hand, those that have committed but not yet fully implemented such standards comprise the middle tier or grey list. The third list include countries that had substantially implemented the tax standard, as embodied in Article 26 of the OECD Model Tax Convention. Article 26 was updated in July 2005, while the latest edition of the Model Tax Convention was updated on 17 July 2008.

The significant change in Article 26 during its 2005 update was the addition of paragraphs 4 and 5. As explained in the OECD website:

These paragraphs make it clear that a state cannot refuse a request for information solely because it has no domestic tax interest in the information (paragraph 4) or solely because it is held by a bank or other financial institution (paragraph 5). Bank secrecy is not incompatible with the requirements of Article 26, and virtually all countries have bank secrecy or confidentiality rules. Meeting the standard of Article 26 requires only limited exceptions to bank secrecy rules and would not undermine the confidence of citizens in the protection of their privacy.

Based on the above criteria, the following countries were classified by OECD as either in the blacklist or grey list:

• Blacklist: Costa Rica, Malaysia, Philippines, Uruguay.


• Grey list: Andorra, Anguilla, Antigua and Barbuda, Aruba, Austria, Bahamas, Bahrain, Belgium, Belize, Bermuda, British Virgin Islands, Brunei, Cayman Islands, Chile, Cook Islands, Dominica, Gibraltar, Grenada, Guatemala, Liberia, Liechtenstein, Luxembourg, Marshall Islands, Monaco, Montserrat, Nauru, Netherlands Antilles, Niue, Panama, St Kitts and Nevis, St Lucia, St Vincent & Grenadines, Samoa, San Marino, Singapore, Switzerland, Turks and Caicos Islands, Vanuatu.

Sins Of Omission?

Luxembourg Prime Minister Jean-Claude Juncker, apparently smarting from the inclusion of his country in the grey list, commented that: "I think that the treatment given to some countries is a bit incomprehensible." He complained, in particular, why several US states with tax-friendly laws such as Delaware, Nevada and Wyoming were not placed in the shame list. Now, that's a mouthful considering that U.S. President Barack Obama was among those who pushed mightily for a crackdown on tax havens.

The conspicuous absence of two of China's territories, namely Hong Kong and Macau, in any of the above lists also give us another reason to question the integrity of the lists themselves. We'd like to recall that President Obama had to broker a last-minute compromise with Chinese president Hu Jintao just so the latter would sign off on the final G-20 summit communique. Geopolitics triumphed over economics in China's case.

I stumbled upon the most provocative insinuation, however, from Hugo Duncan's report here, where he wrote: "Britain is reckoned to be one of the biggest tax havens in the world thanks to the tax relief it gives to non-doms who have flocked to London to protect their wealth." I don't know about that, but assuming Mr. Duncan is right, this would fly in the face of British Prime Minister Gordon Brown who presents a Mr. Clean-up image on the world stage.

Missing The Boat, Missing The Point?

Misery loves company, but Uruguay and Malaysia apparently don't find our company very pleasant. After just one day on the blacklist, Uruguay graduated immediately to the grey list through a decisive and alert action on the part of its finance minister, Alvaro Garcia. Finance Minister Garcia promptly wrote OECD secretary general, Angel Gurria, to inform him that his country had accepted the "standards on transparency and exchange of information, as set out in the 2005 version of Article 26 of the OECD Model Tax Convention." Uruguay's President Tabare Vasquez has a more compelling reason for OECD to get them off the blacklist: "In Uruguay, we are not a tax haven. Uruguay may not be a monastery, but it is not a casino."

Malaysia was equally quick on the bat. It's newly installed Prime Minister Datuk Seri Najib Razak, who is concurrently the finance minister, likewise sent an official statement to the OECD leadership to reaffirm its commitment to subscribe to OECD standards for effective exchange of information. Malaysia (Labuan) is expected to be moved to the grey list on or before the next G-20 meeting later this year.

What about the Philippines? The first official reaction came from Press Secretary Cerge Remonde. According to Paolo Romero here, Secretary Remonde had insisted that the country had one of the world's strictest banking secrecy laws and thus it was "unfortunate" that it had been designated as having failed to meet OECD criteria. Of course, we would fail! He totally missed the point in why we were blacklisted in the first place. Strict banking secrecy laws have no bragging rights in the post-crisis world. Transparency is the new mantra. I wish Secretary Remonde had been briefed more thoroughly on the matter by his staff.

Did we attempt to get delisted like what Uruguay and Malaysia did much earlier? The picture is not clear about that, but I'm afraid the answer is "no." In a statement attributed to Finance Secretary Margarito Teves, he said that “a review of existing local legislation relative to banking secrecy as well as tax information secrecy” would have to be done by Congress. That doesn't sound very reassuring. As the country's finance secretary, I had expected him to show the same leadership, decisiveness and conviction displayed by his counterparts in Uruguay and Malaysia. He fell short of that expectation. Thus, it looks like we will have to hang our head in shame for a while meantime that our blacklist black eye remains.

-----------

UPDATE-April 7, 2009

All is well that ends well. I may have spoken too soon. But then, as a blogger who takes a view on things, that's part of the territory. Happily, the Philippines and three other countries in the OECD blacklist of "uncooperative tax havens" have all been moved to the "grey" list, according to this news report:

PARIS -- The OECD said on Tuesday that the four countries on a tax haven blacklist, published as part of agreements at last week's G20 summit, have committed to meeting international standards and will be removed form the list.

Last Thursday, the Organization of Economic Cooperation and Development placed Uruguay, Costa Rica, Malaysia and the Philippines on the blacklist as part of efforts agreed at the Group of 20 leaders summit to crack down on tax evasion.

The OECD published three lists -- black, grey and white -- which respectively identify the worst offenders, those that are somewhere in-between, and those who are considered as fully committed to internationally acceptable standards.

The removal of the four countries from the blacklist was announced in a statement and at a news conference where OECD chief Angel Gurria said:

"This very important move by so many jurisdictions ... is one of the first deliverables of the G20 meeting."

He was referring to the G20 summit of world leaders which last week asked the OECD to publish the blacklist in a renewed move to crack down on tax fraud across the globe.

Print

Related Posts, By Label (auto-generated):

Widget by Hoctro | Jack Book | The-Online-Quest