“CHAOTIC” AND “HAPHAZARD”.
Bruce Zagaris, a leading international tax law expert in Washington DC, who has advised Barbados on offshore financial tax issues, used those words to describe the fallout from an ill-advised step taken by the District of Columbia’s elected local government council, which manages affairs of the nation’s capital.
Stated simply, what the council did recently was to compile, quite improperly and without consulting any of the 39 nations and territories that could be hurt by the DC action, a list of so-called “tax havens” in the Caribbean, Africa, Europe and the Pacific. If the measures become the law in DC, corporations doing business there and in any of the listed foreign jurisdictions would be forced to file tax returns on their entire income.
With the European union coming up with an equally inaccurate list of “tax havens”, the Organisation for Economic Cooperation and Development (OECD) painting a far more reasonable but different picture of places that may not be complying with international tax standards and now Washington DC joining the bandwagon, Zagaris’ description of what has happened is accurate.
To the countries on the DC list, places that range from Anguilla, Antigua & Barbuda, The Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands, Grenada, St Kitts & Nevis, Dominica, St Vincent and the Grenadines, St Lucia, United States Virgin Islands, Netherland Antilles and Monaco to Jersey, Liberia, Luxembourg, Liechtenstein, Guernsey-Sark-Alderney and Mauritius, it’s another troubling example of wrong-headed policies taking the place of commonsense and fairness. Hence Zagaris’ apt description.
“What we have is a lot of different governments and organisations doing their own lists and it has become very chaotic, haphazard and very difficult for small jurisdictions like those in the Caribbean to be able to respond effectively,” was the way Zagaris, a partner in the Washington DC law firm of Berliner, Concoran & Rowe, put it. “It is certainly going to make it more difficult for those jurisdictions to compete.”
And the competition will not only come from Switzerland, the United Kingdom, France and Singapore but from states in America that have gone into the offshore financial services business. Delaware, Vermont and California come quickly to mind.
“I see what has happened in the last 20 years and it is that increasingly in the US many states have gone into the offshore business,” added Zagaris. “In the mid-1980s, only a handful of states were engaged in risk or re-insurance. Now, you have 20 or so states that are in that business. The same thing applies to the international trust business.”
South Dakota, for instance, is now competing against Barbados and its neighbours for some of the trusts action. How come? For one thing, the US is a superpower and strangely enough it has lower tax standards than many Caribbean domiciles. Little wonder, then, that Gaston Browne, Antigua’s prime minister, told American investors the other day in Manhattan that the tax haven label was yet another hurdle for Caribbean states involved in financial services.
“It is one of the challenges which small island developing states, especially those in the Caribbean, are facing, As we seek to diversify our respective economies, one of the natural areas in which we have significant competence is financial service,” he said.
“By and large, practically all of the countries, certainly in the English-speaking Caribbean in CARICOM, we have been found to be compliant based on the global standards established by the OECD [Financial Action Task Force] and the Global Forum. But unfortunately, we have seen an attack on our countries by various organisations [and governments]. The latest one is the District of Columbia which listed Antigua & Barbuda and several countries in the Caribbean as tax havens.
“We even had a similar classification by the European Union but we have been challenging these unfounded classifications. There is no justification for them because the bodies which have been so empowered to list these countries as tax havens have found all of us to be compliant,” he added.
Sir Ronald Sanders, Antigua’s ambassador in Washington, has challenged the DC list and in letters to many Federal lawmakers in Congress and to the Washington DC Mayor Muriel Bowser, who signed the 2016 District of Columbia Fiscal Year Budget Support Act of 2015 in which the tax haven list was deeply embedded, warned that the “very publication of the act has smeared the reputation of our jurisdiction and will cause US investors to stay away from our country.”
Not only that. The act and the list could cause “the collapse of important correspondent relations” between US and Caribbean banks, which are vital for paying for goods and services bought in the US by Caribbean countries, warned Sir Ronald.
How come this mess?
First, it can be attributed to the incompetence of the DC administration and the city council for not conducting effective research before completing the list.
If they had done due diligence, they would have found out that the OECD had chided the EU for preparing a deeply flawed list similar to the DC’s.
Secondly, DC rushed ahead, apparently believing that might was right and that it made little difference if its action was inaccurate and potentially damaging. What a pit!
