US Escapes the OECD's Blacklist of 'Non-Cooperative Jurisdictions”

July 25, 2016

The Organization for Economic Cooperation and Development has asked the G20 governments to approve its proposed three-step formula for deciding which international financial centers are to be blacklisted as non-cooperative.

The formula, presented at the G20 meeting in Chengdu on July 23-24 , is a response to a request from the previous G20 meeting in Washington in April this year. A draft version was circulated to interested parties last month, though not actually published. The final version appears to be little changed from that draft.

The basic criterion to avoid blacklisting is to comply with at least two out of the following three 'objective' criteria:

A 'largely compliant' rating on international exchange of tax information;
A commitment to implement the OECD Common Reporting Standard (CRS) by 2018;
Having signed the OECD multilateral tax assistance convention.

The G20 countries said at their April summit that they will consider 'defensive measures' against non-cooperative jurisdictions if progress as assessed by the OECD's Global Tax Transparency Forum is not made.

However, 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.

Instead of CRS, the US is using its own reporting system, developed under the Foreign Account Tax Compliance Act.
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.
Washington's rejection of CRS in favor of FATCA has drawn criticism, notably from the well-known campaigning group Tax Justice Network. It described the OECD proposal as potentially a 'whitewash'. See our post US The New Tax Haven?
'The USA should not be among the jurisdictions named as being committed to implementing the CRS because the USA refuses to implement the CRS', TJN says.

TJN also accuses the OECD Global Forum's peer reviews, which underlie the assessments of each jurisdiction's compliance, of being politically biased.

'For instance, there are US legal entities (single-member limited liability companies without US-sourced income) for which there is no ownership information whatsoever in the USA, yet the Global Forum deems the US to be largely compliant', it says. Similarly, it points out, Germany and Switzerland both allow bearer share companies, but Germany's company ownership regime is rated largely compliant, while Switzerland's bearer shares are rated as non-compliant.

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Sources:

OECD (Tax report to G20, PDF file)

Tax Justice Network

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US Escapes the OECD's Blacklist of 'Non-Cooperative Jurisdictions”