In 2004 the OECD published a list of sanctions that might be taken against tax havens / secrecy jurisdictions. They were:

• The use of provisions having the effect of disallowing any deduction, exemption, credit or other allowance in relation to all substantial payments made to persons located in countries or jurisdictions engaged in harmful tax practices except where the taxpayer is able to establish satisfactorily that such payment do not exceed an arm’s length amount and correspond to bona fide transactions [with an unrelated party].

• The use of thin capitalization provisions restricting the deduction of interest payments to persons located in jurisdictions engaged in harmful tax practices.

• The use of legislative or administrative provisions having the effect of requiring any resident who makes a substantial payment to a person located in a country or jurisdiction engaged in a harmful tax practice, enters into a transaction with such a person, or owns any interest in such a person to report that payment, transaction or ownership to the tax authorities, such requirement being supported by substantial penalties for inaccurate or non-reporting of such payments.

• The use of legislative provisions allowing the taxation of residents on amounts corresponding to income that benefits from harmful tax practices that is earned by entities established abroad in which these residents have an interest and that would otherwise be subject to substantially lower or deferred taxes.

• The denial of the exemption method or modification of the credit method. Where a country levies no or nominal tax on most of the income arising therein because of the existence of harmful tax practices, it may not be appropriate for such income to receive an exemption otherwise intended to relieve double taxation. Member countries that permit foreign tax credits may wish to modify those rules to prevent the pooling of income benefits from harmful tax practices with other income. In addition, these countries may wish to implement systems to verify the amounts claimed actually constitute creditable taxes.

• The use of legislative provisions ensuring that withholding taxes at a minimum rate apply to all payment of dividends, interest and royalties made to beneficial owners benefiting from harmful tax practices.

• The use of provisions for special audit and enforcement programs to co-ordinate enforcement activities involving entities and transactions related to countries and jurisdictions engaged in harmful tax practices.

• Terminating, limiting and not entering into tax treaties. Participating countries could adopt, and make public, a policy of not entering into tax conventions with countries and jurisdictions involved in harmful tax practices. Those that are parties to conventions with such countries and jurisdictions may wish to take appropriate measures to ensure that these condition are limited or terminated. Alternatively, participating countries could consider that all existing or proposed treaties with a country or jurisdiction engaging in harmful tax practices contain a limitation-of benefits clause that would prevent the benefits of the treaty from being claimed by third-country residents who had no real connection with the country or jurisdiction. With respect to terminating an existing treaty, it is recognized that such action has important implications which go beyond the revenue impact of the treaty.

There remains a problem that these sanctions are wholly tax related.

But I have to applaud them. If this robustness is included in the work on sanctions they are now undertaking it will be good. They neatly compliment those I have suggested.

I especially like the option of withdrawing treaties: this is good. This is not a one way ticket. Signing is not enough. Action is required. It’s something we will be saying time and again.