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- Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius
and San Marino give up tax haven status.
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- Six offshore locations popular as tax havens in the United
States and Europe have promised within five years to end the practices
that gave them that reputation.
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- Treasury Secretary Lawrence Summers called the announcements
an "important milestone" in the international effort to curb
use of offshore subsidiaries, bank accounts and other arrangements to avoid
taxes.
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- "In today's global economy, it is vital that we
put an end to international tax practices that encourage tax evasion and
im- proper tax avoidance and that distort capital flows," Summers
said in a statement Monday.
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- The commitments from Bermuda, the Cayman Islands, Cyprus,
Malta, Mauritius and San Marino - an enclave within Italy - came in letters
to the 29-nation Organization for Economic Cooperation and Development,
a Paris-based body of developed countries that next week is expected to
release a list of jurisdictions iden- tified as places that offer laws
"to be used by nonresidents to escape taxation" in their home
countries.
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- This list could eventually be used as the basis for international
sanctions or other punitive action against identified tax havens and private
companies operating there. The commitments mean these six countries won't
be on that list - and Bermuda and the Cayman Islands are considered two
of the "most notorious" tax havens worldwide, a senior treasury
official said.
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- Each of the six letters pledges that by the end of 2005
harmful tax practices will be eliminated, that international standards
for fair tax competition, transparency and disclosure will be adopted and
that no new harmful tax regime will be imposed.
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- "The government of Bermuda shares the concerns of
the OECD about the global effects of harmful tax competition and would
like to associate itself with that work," wrote Bermuda Deputy Premier
C. Eugene Cox to top OECD officials.
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- Due to their secretive nature, there are no firm estimates
of U.S. tax losses caused by offshore havens. Britain estimated recently
that it loses about $1.6 billion a year, and much con- cern has been raised
about the $500 billion deposited by foreign financial institutions in the
Cayman Islands.
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- Bermuda, which has no income tax, has figured prominently
in several recent tax controversies, including a decision last year by
the Tax Court that United Parcel Service's creation of a subsidiary there
to insure packages amounted to a "sham trans- action" intended
to avoid U.S. taxes. UPS was ordered to pay millions of dollars in back
taxes and penalties.
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- More recently, some U.S. insurance companies have begun
trans- ferring investment earnings to Bermuda-based operations that offer
"reinsurance" services - thus avoiding the 35 percent federal
corporate income tax and possibly state taxes as well. Reps. Richard Neal,
D-Mass., and Nancy Johnson, R-Conn., have introduced legislation in Congress
aimed at halting that practice.
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- "The company is simply moving money from one pocket
to another pocket within the same corporate entity," Neal said in
a recent House floor speech. "If we do not stop this practice, then
other U.S. companies will be forced to relocate to Bermuda, or be bought
by a Bermuda-based parent, in order to stay competitive."
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