Cayman Islands and Nordic Counties Agree To Share Information On Taxes

By: Ainsley Brown

The between tax evasion and legitimate tax planning is a fine one indeed. This line is now set to get even thinner.

How?

Before I get into the specifics of this a little background is in order. The issues of cross-border taxation are as old as commerce itself, as are the issues of tax evasion and tax planning. This has lead to interesting duality internationally. On the one hand you have double taxation agreements, where countries agree to share tax information; while on the other hand you have tax havens, which are built on the every idea of secrecy and non-disclosure.

So which side is wining?

It would seem that the tax-info sharing group is firmly pulling ahead. The world economic crisis, with tax authorities around the world looking at ways to stop the bleeding from their coffers, has only given greater impetus to this situation. Additionally, there has been a steady push by the Organization for Economic Co-operation and Development (OECD) to see greater co-operation on the sharing of tax-info.

The OECD has two initiatives, which compliment each other, along this score. The first of these is a black list that simply names and shames the unco-operative tax havens. The second, which occurred under the auspices of the OECS’s Global Forum on Taxation, is the Model Agreement on information Exchange on Tax Matters.

Now this is where the Cayman Islands and Nordic deal comes in. The Tax Information Exchange Agreement is based on the OECD model.

The new deal is part of an overall program by the Nordic countries to minimize tax evasion. They have also concluded similar deals with other tax havens – Guernsey; the Isle of Man; and Jersey – and are in advanced negotiations with others – Bermuda; the British Virgin Island; Aruba and the Netherlands Antilles.

In a brief but related side note, the G20 seems poised to develop its own black list and an accompanying sanctions regime, according to the Guardian. Yes you read correctly – Sanctions.

What is not clear from the Guardian story is whether the sanctions will be directly against the tax havens themselves or only indirectly; focusing on corporations and high net-worth individuals who use the tax havens. However, if the Guardian is correct the sanctions will at least have the latter effect – income tax deductions in the form of management fees; royalties; insurance premiums; and dividends that are funneled through shell corporations would not be permitted from a black listed country.

As for the black list itself it reportedly will have three tiers: counties with no double taxation agreements; those with no Tax Information Exchange Agreements (TIEA); and those which have agreed in principle to TIEA but have not signed any.

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