The Organisation for Economic Cooperation and Development (OECD) has issued the long-awaited 2001 Progress Report for its renamed “Project on Harmful Tax Practices” (formerly called the “Harmful Tax Competition Initiative”). Commenting on behalf of the International Tax and Investment Organisation (ITIO), a grouping of small and developing economies, Lynette Eastmond, Director of the ITIO Secretariat, said:

*”The ITIO has sought consistently to persuade the OECD that talking and listening to small and developing economies (SDEs), rather than seeking to dictate to them, could improve the process. We are delighted at the OECD’s public acceptance of this approach. The ITIO also welcomes the OECD’s removal of the ‘no substantial activities’ criterion for deciding whether to label a tax system harmful.

“We are intrigued by the report’s suggestion that development assistance may be provided to help SDEs comply with OECD demands, and look forward to details of what this will mean in practice.

“There is a general sense coming out of the report that the OECD is starting to acknowledge comments about the lack of a level playing field in the whole process. The ITIO remains particularly concerned, however, about the lack of a level playing field in developing and implementing international standards on the exchange of information.

“We would like to know whether OECD members are prepared to state that uniform standards must be universally adopted, without discrimination. Are they and other developed economies prepared explicitly to confirm their intention of abiding by the standards demanded of small and developing economies? Such reassurances would help build further confidence in the process.

“We note that yesterday’s report was not signed by Belgium and Portugal, and that Switzerland and Luxembourg, also OECD members, dissented from the OECD’s 1998 Report. Over ten per cent of the OECD’s 30 members, including the leading onshore competitors with offshore centres, are now refusing to comply with the demands their organisation is making of small countries. In that sense, the playing field looks even less level.

“A final word on sanctions. The close relationship between taxation, inward investment and trade measures should not be ignored. There is a likelihood that any sanctions imposed as a result of the OECD tax initiative could prove incompatible with multilateral trade obligations.

“The ITIO is surprised that in the current global environment, where it has been acknowledged that multilateral solutions based on the rule of law must be found for international issues, the OECD would still be considering ‘naming and shaming’ a few small, developing countries.

“But we hope that matters never reach that stage. The ITIO shares OECD members’ stated desire for ‘change through dialogue and consensus’. In that respect, with all its flaws, today’s report should be seen as an important step forward.”*

The International Tax and Investment Organisation (ITIO) is a grouping of small and developing economies (SDEs) set up in March 2001 to help SDEs respond to global tax and investment challenges. It explicitly considers the development implications of these challenges.