OECD blacklist criteria plan seen to let US ‘avoid CRS blacklist’

Tax industry experts and critics of current international efforts to curb tax evasion are sounding an alarm over a just-published OECD plan for determining which international financial centres are to be “black-listed” as non-cooperative jurisdictions.

Their concern has to do with the fact that the way the black-listing criteria have been drawn up seems – they say – to have been intentionally designed to let the US off the hook with respect to having to comply with the OECD’s own Common Reporting Standard.

The US is now one of the only major countries not to have signed up to implement the CRS – an OECD-backed system designed to facilitate  the automatic exchange of tax-relevant financial information globally.

Officially the US argues that it has no need to participate in the CRS programme, as it has its own tax-information collecting scheme known as FATCA, which compels non-US financial institutions around the world to report to the US Internal Revenue Service on any accounts they have which are held by Americans.

As reported, however, critics have been arguing for months that FATCA is far less stringent than the CRS, paticularly when it comes to reporting back to other countries on accounts held by their citizens in US financial institutions. They argue that allowing the US to avoid being part of the CRS automatic information exchange network risks making a mockery of it, and could ultimately cause it to fail.

Three-step formula

The OECD’s new three-step formula for for determining the criteria under which countries would be black-listed for being “non-cooperative” is contained in a 28-page report that it presented to a gathering of G20 finance ministers in Chengdu, China at the end of last week.

In the report, the OECD proposes that jurisdictions would be able to avoid being considered “non-cooperative jurisdictions with respect to tax transparency” if they met at least two of three criteria: if they enjoyed a “largely compliant” rating on international exchange of tax information, as determined by the OECD’s Global Forum; if they had made a “commitment to implement the OECD Common Reporting Standard by 2018; and/or if they had signed the OECD’s multi-lateral tax assistance convention (Multi-lateral Convention on Mutual Administrative Assistance in Tax Matters, or MCMAA).

STEP: ‘Growing concern’ seen

Among those sounding the alarm over the plan is the respected Society of Trust and Estate Practitioners.   In a report on its website, it notes that there is “growing concern that the use of this formula will avoid blacklisting the US, despite the country’s failure to adopt the OECD’s Common Reporting Standard for automatic disclosure of bank account information”.

“The OECD’s report to the G20 appears to turn a blind eye to the fact that the FATCA system is less stringent than CRS, and relies on US undertakings to converge its reciprocal automatic disclosure regime towards CRS in due course,” the STEP report adds.

Also critical is the Tax Justice Network, a UK-based, anti-tax-avoidance campaign organisation.

In  a report on its website  which preceded the publication of the OECD’s final report by a few days, the TJN said that, based on the “first details” of the OECD’s proposals which had at that point been made public, “our analysis gives rise to grave concerns that the criteria are, in the same way as past attempts at blacklists, weak and ineffective”.

“The USA in particular is likely to escape blacklisting because of the peculiar nature of the criteria,” the TJN added.

Referring to the three criteria, it noted that “the first and most obvious escape route from the blacklist is that a country only needs to fulfil two out of these three criteria. A country can implement the “on request” standard, plus the MCMAA, yet shun the OECD’s much more comprehensive automatic information exchange project – and avoid being blacklisted.”

“The litmus test of the value of the new OECD criteria will rest with the treatment of [the] USA,” said TJN analyst Moran Harari.

“That only two of the three criteria must be met is a worrysome feature, and combined with the requirement that signature of the multilateral tax convention is enough, appears to be tailored to let the US wriggle through.

“The G20 summit have to make clear that ratification of the amended Convention and three criteria have to be part of the OECD’s listing approach.”

According to the OECD’s report to the G20 finance ministers, 83 countries and jurisdictions have thus far signed up to the CRS. As reported, one of them is Russia, which joined the club in May.

One of the reasons for concern that the US isn’t signing up to the CRS is because,  as reported,  it has come under attack recently for becoming one of the world’s newest tax havens, by virtue of favourable tax regimes offered in such states as Nevada, South Dakota and Wyoming, in addition to Delaware, which has long made a feature of its tax code for corporations registered there.

But as IRS commissioner  John Koskinen was quoted as saying in March,  the US can’t sign up to the CRS without the approval of Congress, which would be a time-consuming undertaking at the best of times, but with the US heading towards a presidential election in November, unlikely to be a priority until after a new president has been sworn in.

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