The fight against fiscal colonialism: The OECD and small jurisdictions

Abstract

The twenty-first century unfolded to a strong belief in small states that the world was returning to a system of governance based on power and force rather than fairness and justice. This belief was re-enforced by the actions of the Organization for Economic Cooperation and Development (OECD) in launching its 'Harmful Tax Competition Initiative' in the late 1990s under which it targeted 41 small jurisdictions, mostly in the Caribbean and the Pacific, characterizing them as havens for 'tax cheats' and demanding that they comply with rules, unilaterally established by the OECD, to change their systems of taxation and tax administration or face sanctions from its thirty rich and powerful member states. For three years, between 1999 and 2001, thirty-five of the small jurisdictions resisted the OECD, describing the organization's tactics as dictatorial and bullying. The OECD eventually modified its Initiative but only after the intervention of the new US Republican administration of George W. Bush came to office in January 2001. The atrocities of September 11th in the United States subsequently caused the US Treasury Department to soften its opposition to the Initiative as it launched a world-wide seasrch for terrorist financing, most of which was found in OECD countries. In an atmosphere of profound bitterness, all of the small jurisdictions eventually complied with the OECD's demands on the condition that the OECD would establish a level playing field between its member states and non-OECD jurisdictions in cross border tax matters. It remains to be seen whether this commitment will be honoured. What is certain is that the principle of multilateralism was dealt a massive blow by the OECD's failure to consult meaningfully with smaller jurisdictions, and undesirable precedents may have been set not only for the future of international tax setting and compliance but for internationalism itself.