- The Washington Times - Wednesday, April 8, 2009

Prosperous nations are adopting a “name and shame” blacklist strategy to squeeze as much tax revenue as possible from the estimated $7.3 trillion hidden in offshore banking centers.

Tax havens cost the U.S. government as much as $123 billion a year, according to a recent Treasury Department study.

The pressure on tax havens, which intensified throughout the first three months of 2009, ratcheted up significantly at last week's London economic summit of the Group of 20 industrialized and developing nations. The G-20 adopted its blacklist strategy in coordination with the Organization for Economic Cooperation and Development, a group of wealthy nations that unveiled the list.

All four blacklisted countries - the Philippines, Uruguay, Malaysia and Costa Rica - reacted very quickly. By Tuesday, five days after they were blacklisted, the OECD reported that all four “have now officially informed the OECD that they commit to cooperate in the fight against tax abuse.”

The G-20 believes tax havens have shielded sorely needed tax revenue from their budgets, which have been hammered by the deepening worldwide recession.

“The era of bank secrecy is over,” the summit's final communique announced triumphantly. “We take note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information.”

The G-20 agreed to impose tough sanctions against noncompliant nations, including denying funding from the International Monetary Fund and the World Bank. Transgressors who use the havens could expect extra audits, and businesses operating in the territories could be denied tax deductions.

The OECD list also named 30 “tax havens” and eight “other financial centers” that had committed to the internationally agreed tax standard but had not yet substantially implemented it. The four blacklisted countries have now been added to those lists, which included Andorra, Switzerland, Liechtenstein, Luxembourg, Monaco and Singapore. All six succumbed to great pressure this year to commit to OECD standards.

The Treasury Department announced Monday it would begin negotiations April 28 with the Swiss government to revise a tax treaty in order to provide greater exchanges of information.

OECD Secretary-General Angel Gurria hailed the G-20 outcome. “Recent developments reinforce the status of the OECD standard as the international benchmark and represent significant steps toward a level playing field,” he said.

But Daniel Mitchell, a senior fellow at the Cato Institute, called the G-20's action “a very depressing development for global economic policy. Fiscal protectionism is being enshrined as a form of global policy,” Mr. Mitchell said. “Countries don't want to be smeared, and that is enough of a club to give up their fiscal sovereignty.”

The politicians in the high-tax governments are acting in their best interest, Mr. Mitchell said, not in the interest of the global economy.

President Obama reportedly played a key role at the summit in bridging the differences over tax havens between French President Nicolas Sarkozy and Chinese President Hu Jintao.

Mr. Hu objected to the prospect that China's two special administrative regions, Macau and Hong Kong, might appear on the blacklist compiled by the OECD, which China has not joined. At Mr. Obama's suggestion, the G-20 agreed to “take note” of the OECD's list, which, in the end, excluded Macau and Hong Kong by name. Both have agreed to implement the OECD tax standard.

As a senator and presidential candidate, Mr. Obama co-sponsored legislation with Sen. Carl Levin, Michigan Democrat, to crack down on tax havens. Countries that impede U.S. tax investigations would be subject to money-laundering sanctions. The bill, which is still in Senate committee, would also impose heavy fines on those who use or promote illegal tax havens.

At a congressional hearing last week, Internal Revenue Service Commissioner Douglas Shulman said the IRS was increasing its work force to investigate offshore tax evasion. A task force being formed by the Obama administration will issue a report in December detailing other actions to attack the tax haven problem.

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