By David Jessop From The Jamaican Gleaner

THIS WEEK IN EUROPE

Prime Minister David Cameron wrote to the leaders of all of the United Kingdom’s overseas territories and crown dependencies over a week ago.

They include Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Anguilla, Montserrat, Turks and Caicos Islands, Jersey, Guernsey, and the Isle of Man.

The letter formed a part of the UK government’s attempt to have the leaders of all G8 nations – the grouping that brings together the world’s wealthiest countries – agree on a concrete action plan to tackle tax evasion and aggressive tax avoidance.

Cameron’s initial objective is to be able to demonstrate, by the time of the G8 meeting on June 17-18 in Northern Ireland, that he is getting his own house in order by first bringing the UK’s overseas territories and dependencies into line. His hope then is that all G8 nations, including the US, will agree to adopt similar principles, with the ultimate objective being a changed global approach to taxation and tax information exchange.

As Cameron’s letter states: “There is no point in dealing with tax evasion in one country if the problem is simply displaced to another. I hope others around the world will follow the lead we are setting together.”

The British Prime Minister also made clear that while he respects the right of overseas territories and crown dependencies to be lower tax jurisdictions, he believes that that they must change their approach by addressing two key issues: tax information exchange and beneficial ownership.

Cameron could not have been clearer, saying “dealing with tax evasion is not just about exchanging information. It is also about improving the quality and accuracy of that information. Put simply, that means we need to know who really owns and controls each and every company. This goes right to the heart of the ambition of Britain’s G8 (chairmanship) to knock down the walls of company secrecy”.

In other words Britain and, it hopes, the G8 will agree that the true owners of any offshore vehicle anywhere in the world should cease to be invisible, or by extension, be able to be hide their tax affairs behind nominees in one or multiple offshore jurisdictions.

The path that Britain has now embarked on has significant implications for the future of the BVI and Cayman in particular, but may eventually impact on all Caribbean economies – dependent and independent – that have developed offshore financial services regimes.

What the UK is proposing is that is that its territories and dependencies agree to bring within their government registry details of the ultimate beneficial owners of trust companies, funds and other financial vehicles.

It intends that they should move from an opaque to a transparent regime, sharing information on nationals of nations with whom they have signed tax information exchange agreements.

To achieve this, the UK expects its dependencies and overseas territories to provide for, to quote the British prime minister, “fully resourced and properly managed centralised registries that are freely available to law enforcement and tax collectors, and contain full and accurate details on the true ownership and control of every company”.

At present, the overseas territories seem uncertain how best to respond.

They fear they are being caught up in a British domestic political issue that is being driven by NGOs and the media. They are concerned that any commitment they might make, without the agreement of the United States and European Union member states to tackle the more questionable aspects of their own tax regimes, or without any indication as to how opaque offshore environments in independent countries will be encouraged to adopt similar principles, will only result in them damaging irretrievably a significant part of their economy.

This is because it is likely a high percentage of offshore companies currently registered in the Caribbean Overseas Territories, as well as the large numbers of resident professional advisers will relocate to environments where the beneficial owners can continue to retain their anonymity, whether operating legally to minimise their tax bill, or illegally to hide assets questionably acquired.

Speaking in St Lucia last week about the potential dangers the changing global tax environment poses, the Premier of Montserrat, Reuben Meade, said what worries the territories most is their small size and limited resource base.

This means, he noted, they rely totally on tourism and financial services — sectors that are negatively affected by the global recession and by actions taken globally to combat crime and corruption.

“(Present) actions have serious implications for the territories because their economies are not sufficiently diversified to absorb the fallout from major reductions in income from tourism and financial services,” Meade told a Caribbean Development Bank meeting.

“The reality is that their entire economy can become unsustainable from failure or major disruption in these markets,” he said.

What remains far from clear is how the UK intends taking this issue forward in the Caribbean.

If it is really its intention to see the principles it wants to apply to its overseas territories eventually adopted through a consensus achieved on a multilateral basis by all nations including those in independent Caribbean, then it needs also to explain the region how it and other wealthy nations intend on supporting the likely transition out of yet another sector that has previously enabled the Caribbean to prosper.

What seems to be happening is that a new global policy, driven by concern about tax arbitrage, tax evasion and avoidance, organised crime, cyber criminality and financing for terrorism, has coincided with domestic lobbying by political parties, the media and NGOs on increasing the tax take at a time of austerity.

These factors together are now leading to the promotion of change without any serious consideration being given to the collateral damage in regions like the Caribbean, let alone any understandable basis on which such a policy might be applied globally.

While Cameron, German Chancellor Angela Merkel, US Presdient Barack Obama and others clearly hope that all nations will act in a similar way, in the real world where large sums of legal and illegal money flow rapidly across the global financial system using multiple jurisdictions, the detail is fraught with problems.

As matters stand, the UK is hoping that its overseas territories and crown dependencies will agree to demonstrate publicly at an event on June 15 that they intend making the changes that Britain requires.

Under the present poorly defined circumstance, this may be wishful thinking.

David Jessop is director of the Caribbean Council. Email feedback to david.jessop@ caribbean-council.org

For more on this story go to:

http://jamaica-gleaner.com/gleaner/20130526/business/business5.html