Shawna Lake discusses the impact of the recession on countries involved in the financial services industry, who have limited natural resources.
How has the current climate affected investments in St Kitts?
There has been a surprisingly high level of interest, but certainly a slowdown in the pace of existing projects – investors have been tightening their belts to brace for the long haul. They want to avoid total closure of their developments in the event that the economy does not rebound as quickly as predicted. We have not experienced a catastrophic shut down of major hotel projects, so we are continuing to be cautious and prudent as we move forward.
Why do you feel St Kitts and other small developing countries were described as “scapegoats” at April’s G20 summit in relation to tax evasion?
St Kitts, as well as many other small developing low tax jurisdictions around the world, was targeted at the last G20 summit as a culprit for the global financial crisis, and the result was the emergence of the OECD’s white, grey and black lists. The lists reflected countries that did not have the minimum of 12 tax information exchange agreements with the G20 countries. Something it did not reflect, however, was whether countries have laws providing for the collection of and accessibility of relevant account information in the event that a tax request is received from a tax treaty partner.
The list also failed to distinguish between countries with tax information exchange agreements meeting the OECD standard, and those that simply had old Double Taxation Agreements failing to meet the current international standard. The white list actually includes countries without the minimum number of 12 tax information exchange agreements meeting the OECD standard.
Many of the countries listed on the grey list, like St Kitts, were never approached by 12 OECD countries. We were approached by approximately four countries during the period between 2002 (when we made our commitment to the process) and 2009 (when this list was developed). Further, the OECD list did not reference the fact that the Federation of St Kitts Nevis has put in place legislation to allow for it to exchange civil and administrative tax information with a number of countries included in a schedule to the legislation.
Among the G20 countries there are loopholes within some of their own member countries’ political sub-divisions which put them at higher risk for tax evasion within their own borders. It also increases the likelihood of money laundering. This is primarily due to the lack of provisions in domestic laws requiring the collection of beneficial ownership information by registered agents or other financial service providers. If this issue is not addressed, the proliferation of Tax Information Exchange Agreements cannot solve the overall problem.
How do you think the OECD’s declaration of a level playing field has affected St Kitts? Would you suggest the DTA as a solution or another vehicle altogether?
The declaration only touched on one aspect, namely the issue of countries making commitments to their process. It did not address the fact that small developing countries are not offered the same mechanisms for exchange of information as countries with coveted resources, natural or otherwise. An agreement for the avoidance of double taxation is a huge asset not just to countries like ours, but also to investors who want to avoid being taxed both in their country of residence and their home country. There is the perception that low or no tax jurisdictions do not have any tax base whatsoever, but St Kitts does have a corporate tax base for corporations and entities operating within its jurisdiction.
Cross border trade in services is particularly important for the economic viability of small countries like St Kitts. Developed countries should provide a responsible way for jurisdictions like ours to participate in trade on the international market. The use of double taxation treaties with the information exchange component is an excellent model or in the alternative some other form of bilateral investment treaty.
Why do you think the G20 countries have failed to negotiate meaningful treaties? Do you think they need greater motivation from a source as yet unidentifiable?
Canada and the Nordic countries have been more progressive in their approach to small developing countries by offering double taxation agreements or benefits within their laws that provide the same effect.
Others, however have taken a more aggressive stance to force small, vulnerable economies into compliance by simply threatening sanctions as opposed to offering mutual benefits. The simple answer is, if you can get what you want without giving anything back, why not!
What do you see as the way forward for St Kitts?
St Kitts is continuing to request double taxation agreements or other forms of tax exchange agreements with mutual benefits. We want them to include trade and investment components, ensuring that we are able to participate in the world economy.
If small developing countries are provided with the opportunity to have meaningful tax information exchange agreements which incorporate mutual benefits, this would be a tremendous first step. If the panic and finger-pointing continues, these countries will be pushed below the poverty line, resulting in more international instability than we are seeing today. It can also, in a worst case scenario, result in some of these countries being taken advantage of by countries that are not responsible international players.
Do you see a one-size-fits-all solution as the way forward as regards both DTAs and TIEAs? Canada’s TIAE model gives limited double taxation relief for countries it has tax information exchange arrangements with – do you see this working across the board?
There are some OECD countries that offer the threat of defensive measures as the reason why we should sign TIEAs with them. This has caused concern for small nations like St Kitts. St Kitts has laws in place that provide for exchange of information for criminal tax matters once a request is made through our Financial Intelligence Unit, so we do not require tax information exchange agreements for requests for information from any country worldwide for criminal tax cases. However for civil and administrative tax information exchange, this involves a higher level of cooperation and coordination between the revenue agencies of two countries. An information exchange agreement for non-criminal tax matters should therefore include some mutual benefit for both countries if they have expressed a desire to work together. Different countries have different things to offer. I will be the first to say that criminal tax information exchange should not even be dependent on an agreement; it should be provided for in a country’s laws, which is the case in St Kitts. Canada took an extremely progressive approach, which meant that some countries within the Caribbean region looked favourably to negotiate TIEAs with them. The Canadian model is one worthy of attention by other OECD and G20 countries as a good example of a developed country helping developing countries to become more self sufficient nations rather than countries merely thriving on handouts.
For further information Tel: (869) 465 1153;
Email: ceo@stkittsipa.org; www.stkittsipa.org
