Sovereign Persons & the Regulation of Offshore Legalities

1. Sovereign Persons & the Regulation of Offshore Legalities Gregory Rawlings Centre for Tax System Integrity RegNet, The ANU

2. “The whole thing does not end with Andorra, Monaco or Liechtenstein. I would like to know what other countries like the United States, Singapore and Taiwan think about the fiscal directive on savings, because money is volatile and if in the end Europe applies the directive it will see capital flee to these other countries” (Forme, cited in Lomas, 2003:tax-news.com, emphasis added)

3. “The results of the assessment indicate that financial sector supervision is generally sound. This view largely reflects considerations of the supervision of banking activities, which represent in excess of 95 percent of all financial sector activities. There is generally high compliance with international standards for anti-money laundering” (IMF 2002:4)

4. Standard & Poor’s upgrades Andorra’s credit rating from “–AA” to “AA”, recognizing its “…wealthy economy, a competitive services sector and stable political and institutional framework.” (Lomas 2004: Tax-News.com).

5. New York credit agencies regulate countries and companies alike, by withholding or awarding their rankings with consequences for the reputations of both (Braithwaite & Drahos 2002: 27 & 160).

6. Contents of Presentation • Methodology • Offshore Finance Centres (OFCs/Tax Havens) and Multilateral Initiatives • Meta Principles in Offshore Regulation • Jurisdictional Ambiguity and Fiscal Bilateralism: Sustaining a Global Market for Ongoing Tax Competition • An Offshore Narrative from Singapore

7. Methodology • Interviews with 48 accountants, lawyers, regulators, fund managers, insurers, CEOs, legislators and fiduciaries • Australia, Andorra, Guernsey, France, Samoa and Singapore • Semi-structured and open-ended, allowing interlocutors to raise issues that were meaningful and relevant to them • Archival Research

8. Offshore Finance Centres and Multilateral Initiatives • Organisation for Economic Cooperation & Development (OECD): Harmful Tax Practices Project • European Union (EU): Savings Tax Directive • International Monetary Fund (IMF): Program of offshore assessments

9. 1998: First OECD Report • OFCs encourage tax evasion, undermine tax systems and distort global investment flows

10. OECD Tax Havens 2000

11. 30 listed tax havens have complied • Ongoing talks to establish exchange of information agreements • OECD: moved away from regulation by command and control to responsive regulatory dialogue

12. EU: Savings Tax Directive

13. The IMF and the “Tequila Effect”

14. Tax Haven states must negotiate with IMF, OECD and EU • “Uncooperative tax havens” become “participating partners”.

15. “At least once a year government’s of places where you’d normally think ‘where is that?’, basically get to sit down with the large economies and discuss issues that are relevant including tax legislation. At least they get the attention of people they normally wouldn’t get the attention of. This has two advantages for them. For one they are at the table with the largest, most developed countries. Second, they are inside the process and they can influence it” (Interview with author Paris February 2004).

16. Enforcement to Management • Coercive measures fraught with difficulty • Regulation by persuasion and cooperation is vital

17. Meta Principles in Offshore Regulation • Meta-regulation involves “shaping the risk management systems of other organisations in the taxpaying environment” (Braithwaite 2003: 3)

18. “interventions of ever increasing intrusiveness” (Ayres & Braithwaite 1992:6). • France & Monaco • 1962: France “denounces” Monaco

19. OECD’s Defensive Measures

20. Jurisdictional Ambiguity & Fiscal Bilateralism • Taxation is emblematic of national sovereignty • Bilateral system of DTAs (Double Taxation Agreements) between sovereign states

21. “the agreement is presented as both a multilateral instrument and a model for bilateral treaties or agreements. The multilateral instrument is not a ‘multilateral’ agreement in the traditional sense. Instead, it provides the basis for an integrated bundle of bilateral treaties” (OECD 2002: 2, emphasis added)

22. Multilateral initiatives allow tax havens to demonstrate their good governance to the world, maintain their client base and sustain an on-going fiscal competition between states for tax revenues

23. Jurisdictional Ambiguity: Constraints on independence • States can use these constraints to their advantage • February 2003: Guernsey signs bilateral exchange of information treaty with USA

24. “to strike up bilateral relationships with smaller territories. The EU Savings Tax Directive allows us to have treaties of information exchange with the EU members proving that the island can deal internationally. The EC can make prejudicial rulings that disadvantage members in their international relationships, for example a tax agreement between Dublin or Luxembourg and Brazil…

25. This doesn’t apply to the Channel Islands. We can deal directly with Brazil if we want to. The more bilateral relationships we have the better. They also provide a contribution as to how one should regulate to the best standards internationally. This is good for Guernsey” (Interview 20 January 2004).

26. Tax haven states value bilateral exchanges • The bilateral international tax system works well for small tax haven states

27. An Offshore Narrative from Singapore

28. Thank You Gregory Rawlings Centre for Tax System Integrity RegNet, RSSS, The ANU Email: Greg.Rawlings@anu.edu.au