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Cablegate: Bermuda On Oecd's "White List", Warding Off "Tax Haven

VZCZCXRO0274
RR RUEHRN
DE RUEHHT #0134/01 3161905
ZNR UUUUU ZZH
R 121905Z NOV 09 ZFF4
FM AMCONSUL HAMILTON
TO RUEHC/SECSTATE WASHDC 3922
INFO RUEHLO/AMEMBASSY LONDON 0901
RUEHSS/OECD POSTS COLLECTIVE
RUEHHT/AMCONSUL HAMILTON 2099

UNCLAS SECTION 01 OF 02 HAMILTON 000134

SENSITIVE
SIPDIS

STATE FOR EUR/WE (MARBURG ADN ABBASZADEH)

E.O. 12958: N/A
TAGS: ECON BD
SUBJECT: BERMUDA ON OECD'S "WHITE LIST", WARDING OFF "TAX HAVEN
LABEL

HAMILTON 00000134 001.40 OF 002


Summary


1. (SBU) In June 2009, the Government of Bermuda moved onto the
OECD's "white list" with the signing of the minimum required 12
Tax Information Exchange Agreements (TIEAs). Bermuda Government
officials and international businesses hope that Bermuda's
placement on the white list will deter possible U.S. legislation
directed at tax havens that could drive business away from
Bermuda. Bermuda took quick action after the OECD in April 2009
included Bermuda on the "grey list" of jurisdictions that have
committed to international tax transparency standards but not
yet implemented them. End summary.

The Crackdown on Tax Havens


2. (U) Spurred by public outrage over big bonus-earning bankers
and high-profile frauds by wealthy financiers, leaders pledged
at the April G20 Summit in London to clamp down on tax havens.
At the same time, the OECD issued its "grey list," which was
split into two parts - one of countries, including Bermuda,
labeled "tax havens" and another group, including Switzerland
and Singapore, which were labeled "other financial centers."
The OECD "grey listed" Bermuda in its progress report April 2,
2009 citing its lack of follow-up action since the island's
commitment to international tax transparency standards nine
years ago. The OECD defines a tax haven as a jurisdiction with
no or nominal tax, a lack of information exchange, a lack of
transparency, and no substantial local activities. Soon after
the progress report was published, Jeffrey Owens of the OECD's
Centre for Tax Policy and Administration explained that "Low tax
alone does not classify any place as a tax haven, the key thing
is to have effective exchange of information." Bermuda has
focused on the TIEAs to prove its position that it is not a tax
haven.

Bermuda acts to avoid "tax haven" label


3. (U) As of April 2009, Bermuda had only three Tax Information
Exchange Agreements (TIEAs), but it rapidly implemented the
OECD's standard by signing nine agreements in two months so that
by June, Bermuda had moved on to the "white list." Minister of
Finance Paula Cox stated that "Bermuda is not a tax haven. The
OECD has stated that in relation to tax matters, the only
distinction to be made between jurisdictions is on the basis of
whether or not they are cooperative. Bermuda is cooperative and
has now concluded 12 information exchange agreements." The OECD
expects countries to continue to negotiate more agreements after
they have reached the minimum 12 required TIEAs as it is
interested in seeing how these agreements work in practice and
seeing real change.

4. (SBU) As of October 21, 2009 Bermuda has signed 18 TIEAs with
the United States, Australia, United Kingdom, Denmark, Norway,
Sweden, the Faroe Islands, Greenland, Iceland, Finland, Ireland,
New Zealand, the Netherlands, France, Germany, Japan, Mexico and
Aruba. Finance ministry officials stated that these agreements
had been in the works for several years but Bermuda had failed
to meet the April 2009 deadline. (Bermuda executed its first
TIEA in 1986 in a treaty between the United States, the United
Kingdom, and Bermuda.) Finance Ministry Permanent Secretary
Donald Scott explained to the Consul General on October 23 that
Bermuda had to get its legislative framework for the TIEAs in
place. Bermuda first liaised with the UK in order for the
Government of Bermuda to engage directly with OECD members.
(Note, Bermuda is not a member of the OECD.) Bermuda also
accelerated its effort to conclude TIEAs by creating a unit to
deal with treaty matters. Scott noted that Bermuda has other
TIEAs in the pipeline with Canada, Spain and Portugal.

5. (SBU) Scott also cited as evidence Bermuda is a cooperative
jurisdiction its active involvement since 2003 as a member of
the Caribbean Financial Action Task Force (CFATF), a regional
body that is an associate member of the Financial Action Task
Force (FATF). CFATF seeks to implement common countermeasures
to address the problem of criminal money laundering and tax
cheating. Bermuda also enacted the Anti-terrorism (Financial
and Other Measures) Act in 2004, the Financial Intelligence

HAMILTON 00000134 002.40 OF 002


Agency Act in 2007 and the Proceeds of Crime (Supervision and
Enforcement) Act in 2008 to enforce the island's financial
regulatory system. In 2009, Bermuda successfully lobbied to
become joint vice-chairman of the Steering Group of Global Forum
of the OECD. Bermuda sought this position to demonstrate its
bona fides as a cooperative jurisdiction in international tax
matters as well as to gain a position of influence in the future
direction of international tax cooperation matters.

Comment


6. (SBU) This progress is a demonstration of Bermuda's
commitment to meeting the OECD's requirements and staving off
any label or image as a "tax haven." During this recession,
Bermuda`s officials, international companies and public are
focused on possible legislation targeted at tax havens that
could threaten the international business activity in Bermuda,
which is critical to its economic success. The move puts
Bermuda in the company of such nations as Argentina and the
British Crown dependencies and ahead of rival jurisdictions such
as the Cayman Islands, British Virgin Islands, Switzerland and
Turks and Caicos.SHELTON

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