In an apparent attempt to head off the consequences of a soon to be issued report 6 countries – Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius and San Marino (a tiny enclave within Italy-not the city in California) – Have drafted letters making an advance commitment to end “harmful tax practices.”
The extent of tax avoidance through the use of “tax havens” has taken on increasing importance recently with the introduction of legislation in the U.S., aimed primarily at Bermuda based insurers, which attempts to end what is seen as an unfair tax advantage.
A meeting of representatives from the 29 member countries of The Organization for Economic Cooperation & Development (OECD), headquartered in Paris, is scheduled to take place on the 26th of June, and the attending ministers will review a report on the “tax haven” problem.
Following presentation of this Report, “the OECD with the French Minister of Finance Mr. Fabius will launch a global dialogue on harmful tax practices.” This international symposium includes all the OECD members along with 30 other countries, and will attempt to work out rules aimed at eliminating tax avoidance schemes.
In a letter addressed to Donald Johnson, OECD Secretary General, C. Eugene Cox, Bermuda’s Deputy Premier and Finance Minister, said his government “shares the concerns of the OECD about the effects of harmful tax competition and would like to associate itself with that work.”
“In fulfillment of this commitment the Government of Bermuda undertakes to implement such measures (including through any legislative changes) as are necessary to eliminate any harmful aspects of Bermuda’s regimes that relate to financial and other services (as provided in more detail in the Annex to this letter),” wrote Cox.
The other countries involved made similar commitments to be phased in over a 5 year period. The essence of that commitment is a pledge eliminate “any aspects of the [tax] regimes for financial and other services that attract business with no substantial domestic activities.” This presumably means that insurers such as ACE Ltd. and XL Capital Ltd., which were founded and are headquartered in Bermuda, would not be affected, but insurers that set up subsidiaries in Bermuda and elsewhere simply to avoid domestic taxes would be.
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