Cover Story
What The Pacific Islands Could Do
Some Pacific Islands tax havens may find it better to close shop rather than take on the heavy cost of complying with tax haven rules pressed on them by the OECD, according to the Suva headquartered Pacific Financial Technical Assistance Centre (PFTAC).
It says the international campaign for curbs on tax havens will have a profound impact on virtually all tax havens around the world.
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It will call for "very substantial adjustments in legislation and regulation" as well as in supervisory capacities and practices.
In a paper prepared for the 2001 Forum Economic Ministers¹ Meeting (FEMM) in the Cook Islands, centre adviser Klaus-Walter Riechel says this likely scenario suggests that the Pacific's offshore centres, as those elsewhere, will on the one hand face "very substantial costs related to the unavoidable upgrading of their legal and enforcement systems", while at the same time face the prospect of a "sharp decline in the number of their customers, as well as income from licence fees and/or other revenues related to offshore activities."
While this scissors movement of costs and return was not in doubt, a specific country situation could only be assessed by a careful examination of, on the one hand, the adjustments needed to implement the necessary reform and, on the other hand, the likely rate of withdrawal of banks and companies as a result of higher standards in the supervisory regime. "Depending on the situation, the net balance of such a development may well be negative," he said.
"In this case, the abandonment of offshore operations is the best solution, especially if it helps restore confidence and reputation and ensures the goodwill and cooperation of "home" countries committed to high standards.
"To ensure that no unnecessary resources are spent on any upgrading of the supervisory framework and institutions, such an assessment should be undertaken before a decision is made in favour of such changes."
Funded by the International Monetary Fund, the United Nations Development Programme, the European Union, Australia and New Zealand, the PFTAC supplies technical assistance and advice, mainly at national reserve bank level, to countries wishing to improve and develop their banking and other financial infrastructure.
