Conclusions and Recommendations

• Author: David Kerzner, David W. Chodikoff
• Pages: 343-358

343

chapter eleven

CONCLUSIONS AND RECOMMENDATIONS

A. CONCLUSIONS

In 1998, the OECD viewed eliminating harmful tax practices as essential to

promoting healthy tax competition and, ultimately, global economic growth

and development. The OECD identif‌ied the two primary contributors to these

harmful tax practices as tax havens and so-called preferential tax regimes.1 It

viewed tax havens (comprising for the most part sovereign countries or f‌is-

cally sovereign territories) as possessing four key identifying features: (1) no

or only nominal income taxes, (2) lack of ef‌fective exchange of information

(EOI), (3) lack of transparency (relating to the legislative, legal, or adminis-

trative provisions of a jurisdiction), and (4) investment with no substantial

activities.2 The OECD established the Global Forum on Transparency and

Exchange of Information for Tax Purposes (Global Forum) in 2000, which

developed the Agreement on Exchange of Information on Tax Matters, or model

tax information exchange agreement (TIEA), in 2002.3 The Model TIEA was

developed to address the issues arising from the harmful tax practices project,

and in 2005 the Global Forum adopted standards on transparency relating

to the availability and reliability of information. A primary objective of the

Model TIEA was to compel tax haven jurisdictions to enact laws to override

their bank secrecy laws.4 The OECD further noted that the lack of ef‌fective

1 For an in-depth examination of the OECD’s war against tax evasion, see Chapter 3.

2 See Chapter 3, Section C.

3 See Chapter 3, Section E; OECD, Agreement on Exchange of Information on Tax Matters (Paris:

OECD, 2002) [Model TIEA].

4 See Chapter 3, Section D.

344 • InternatIonal tax evasIon In the Global InformatIon aGe

EOI by tax havens denied f‌iscal authorities access to bank information that

was critical to raising revenue and preventing tax avoidance and base erosion.

Both Canada and the United States tax their residents (and in the case

of the United States, citizens) on a worldwide basis.5 TIEAs can assist f‌iscal

authorities to obtain foreign taxpayer information that can be used to sup-

port the administration and enforcement of their country’s tax laws. In this

way, it can broadly be said that TIEAs support the goals of both horizontal

and vertical equity in international tax law policy.6 To the extent that TIEAs

can be a deterrent and reduce the tax motivation for taxpayers to move in-

come-producing assets to tax havens, it can be argued that TIEAs also help

advance the goal of capital export neutrality.7 TIEAs also support the goals

behind EOI that aim to facilitate the administration of tax laws of a contract-

ing party. Although TIEAs only enable f‌iscal authorities to react to known

or suspected cases of tax evasion, on the whole TIEAs support the general

policy objectives of international taxation relating to equity and EOI.

It has been more than seventeen years since the OECD published its

Harmful Tax Competition report as the framework for eliminating harmful tax

practices. Since the OECD began its initiative against tax havens in 1998, a

number of signif‌icant economic, political, and legal developments have taken

place around TIEAs. At the outset of its initiative, there was ambivalence re-

garding tax havens in the OECD community and political controversy about

the right of sovereigns to set their own tax rates. From an economic perspec-

tive, it was estimated that as of 2010 the money in of‌fshore tax haven ac-

counts was more than $21 trillion, and the OECD, G20, and G8 were unif‌ied

in their goal to improve EOI to stop tax evasion.8 The Global Forum mem-

bership now includes 133 jurisdictions, and never before has there been this

level of international cooperation around supporting the OECD standards

and combatting tax evasion. From a legal perspective, since 2005 the Global

Forum has established over 1,500 EOI relationships that allow for EOI in ac-

cordance with the OECD standards.9 Additionally, over 100 jurisdictions are

participating in the Global Forum’s peer review process to implement the

OECD standards.10 In light of both the dangers and the complexities posed by

economic globalization, the international cooperation that has taken place

around TIEAs as a result of the work of the Global Forum merits its own

5 See Chapter 2.

6 For a discussion of the goals behind international tax policy, see Chapter 2, Section E.

7 See ibid.

8 For an overview of the problem of international tax evasion, see Chapter 1, Section A(1).

9 See Chapter 3, Section G.

10 See Chapter 3, Section E.