Appendix 1 sets out a summary of the principal international initiatives affecting Guernsey. Of these, attention is currently focused on the OECD initiative, partly because it is the most recent body to have reported, but largely because it represents unfinished business.


The Organisation for Economic Co-operation and Development (OECD) was established in 1960 as a co-operative organisation to promote policies that would 'achieve highest levels of sustainable economic growth' and 'contribute to the expansion of world trade '. Its membership currently comprises some 29 different countries, including all G7 countries and all member states of the EU. As such, it does not have any legislative or governmental function and is merely an advisory body. However, its pronouncements carry substantial authority and it is likely that many countries, including non-members, would take careful note of any recommendations made by it. Tax issues are the responsibility of the Committee on Fiscal Affairs which, amongst other things, has been instrumental in drafting and promoting a standard double tax agreement, which has formed the basis of many of the bilateral double tax agreements that are currently in existence.

OECD Review Of Harmful Tax Competition

The process of reviewing offshore financial centres commenced in May 1996 as part of a wider exercise, whereby the OECD was asked to 'develop measures to counter the distorting effects of harmful tax competition on investment and financing decisions and the consequences for national tax bases', and report back in 1998. The Committee on Fiscal Affairs created a body known as the 'Special Sessions on Tax Competition;, under the joint chairmanship of representatives from France and Japan, which was responsible for the production of a report in early 1998. Although the report produced by this body was approved by the OECD council, it did not receive the OECD's unanimous approval. Both Luxembourg and Switzerland abstained and issued their own statements on the report's conclusions. This report led to the establishment of a Forum charged with the review of two matters. Firstly, preferential tax regimes offered by the OECD member countries, and secondly, the identification of 'tax havens'. The Forum published its initial report on 26 June 2000.

OECD Forum Report

The Report of the OECD Forum, published on 26 June 2000, contains two lists. Firstly, a list of the preferential regimes available in OECD member countries that are regarded as potentially harmful, and secondly, a list of jurisdictions that have been classified by the OECD as tax havens that had not, by the time the report was produced, given a commitment to co-operate with the OECD to eliminate what the OECD regard as harmful tax practices. As was expected, Guernsey, in common with Jersey and the Isle of Man, appears on the second of these two lists. The former list is of no specific relevance to Guernsey. However, it is worthy of note to those in the insurance industry, that the lists include preferential regimes applying to insurance in eight OECD member countries, ie. Austria, Belgium, Finland, Italy, Ireland, Portugal, Luxembourg and Sweden, with the result that the 'harmful' features of these regimes will have to be removed by April 2003. The second list is less specific. It does not identify the specific tax measures that are regarded as being harmful. Quite how the OECD arrived at this list is not clear. The published criteria are not capable of objective re-evaluation.

What Does The OECD Want?

Precisely what the OECD expects is difficult to ascertain. In their report of 26 June 2000, the OECD Forum made much of the fact that six jurisdictions - Bermuda, The Cayman Islands, Cyprus, Malta, Mauritius and San Marino - had made a political commitment to 'eliminate their harmful tax practices and to comply with the principles of the 1998 report', and even published the letters of commitment on the OECD website. However, the letters published did not include the all important annexes to these letters, listing the specific commitments that have been given by those jurisdictions. One of the key matters which the OECD are likely to press for is a commitment to exchange information. However, this is a far from straightforward matter which raises a number of issues, including:

  1. whether the information will merely need to be supplied on request or spontaneously;
  2. whether it covers civil as well as criminal matters;
  3. whether it would be supplied with the conclusion of a comprehensive double tax agreement or merely an agreement to exchange tax information.

The other aspect likely to be of interest to the OECD is a 'ring-fenced' tax regime. The Isle of Man pre-empted the publication of the OECD report with a proposal to levy zero rates of tax on certain types of business, including insurance and shipping, without restricting this benefit to businesses owned from outside the Isle of Man. The equivalent in Guernsey would be to remove the conditions that companies have to satisfy in seeking exempt or international status, whilst safeguarding the potential loss of tax from Guernsey resident shareholders by enhanced anti-avoidance measures. However, the essential point is whether this would be acceptable to the OECD. At this stage this is difficult to predict.

Appendix 1

International Initiatives Affecting Guernsey

The Edwards Report

An investigation by the UK Government into the financial regulation of the Crown Dependencies Report, published in November 1998. The Report contained some recommendations concerning legislative approach and regulation. However, Guernsey's reputation for stability, integrity, professionalism, competence and good regulation was endorsed by the Report. The Island's regulatory systems, judicial and prosecution systems and co-operation with other jurisdictions were praised.

Financial Stability Forum

The repot by the Financial Stability Forum considered the implications of offshore financial centres (OFC's) for global financial stability, ranking jurisdictions into three categories based on their perceived quality of supervision and degree of co-operation. The report was based on a survey of all OFC's into their standards for supervision, co-operation and information sharing. The report categorised OFC's into three groups. Guernsey was placed in the top group.

Financial Action Task Force

The exploitation by criminals of weaknesses in jurisdictions, enabling the continuation of money-laundering activities, was investigated by the Financial Action Task Force (FATF). All countries and territories which are part of the global financial system have been urged to change any rules or practices which impede the fight against money-laundering. Those with serious systemic problems were identified in the report by the FATF, which sought to identify those countries that are non-co-operative in the 'fight against money-laundering', or more specifically, who have rules and practices which impede against international co-operation against money-laundering. Fifteen jurisdictions, including a number of recognised OFC's, were names as having non-co-operative practices. The list did not include Guernsey.

EU Code Of Conduct

In December 1997 the ECOFIN Council of the EU member states decided to establish a committee under the Chairmanship of Dawn Primarolo, a UK Government Treasury Minister, to consider fiarness in taxation. This committee was charged with reviewing preferential tax regimes, ie. regimes that provide a lower rate of tax than that generally applicable in the jurisdiction concerned, in the European member states and their dependent territories. The work of the European Code of Conduct was similar, but not identical, to that of the OECD. Firstly, it encompassed all aspects of taxation, not just those related to financial transactions. Secondly, it sought to identify preferential tax regimes, rather than characterise a jurisdiction as a whole as a tax haven or not a tax haven. Adoption of the Code of Conduct Group's work was tied to agreement on two other EU tax measures, including the proposed Saving Directive, and was therefore delayed. However, the report of the EU Code of Conduct Group was finally accepted by the heads of the EU member states at their summit on 20 June 2000. The final list, produced by the Code of Conduct Group, listed five measures applicable to Guernsey as being potentially harmful:

  1. exempt companies
  2. international loan business;
  3. international companies;
  4. offshore insurance companies;
  5. insurance companies.

The latter measure refers to the little used concession available in Guernsey, whereby qualifying offshore insurers, who have elected to pay tax at 20% on their income, are entitled to defer their liability by reference to a claims related formula.


A study undertaken by a Forum established by the Organisation for Economic Co-operation and Development (OECD) intended firstly to identify potentially harmful preferential regimes operated by OECD member countries and to identify jurisdictions regarded as tax havens. And secondly, to recommend actions to be taken against the jurisdictions concerned. The Forum produced its report on 26 June 2000, listing 35 jurisdictions that were found to meet the tax haven criteria set by the OECD. The listing does not include the names of the jurisdictions which have already made a political commitment to eliminate their harmful practices. Guernsey was included on this list. A further list, the 'OECD List of Unco-operative Tax Havens' is due to be completed by 31 July 2001. The OECD Committee on Fiscal Affairs has recommended that OECD member countries adopt a general framework which will facilitate the ability of countries to take defensive measures against unco-operative jurisdictions. It is proposed that once the Forum finalises its recommendations , defensive measures are implemented against the jurisdictions appearing on the list of 'Unco-operative Tax Havens' as of 31 July 2001.

Appendix 2

Key Factors In Identifying Tax Havens For the Purposes Of The OECD Report

  1. No Or Only Nominal Taxes
  2. No or only nominal taxation on the relevant income is the starting point to classify a jurisdiction as a tax haven.

  3. Lack Of Effective Exchange Of Information
  4. Tax havens typically have in place laws or administrative practices under which businesses and individuals can benefit from strict secrecy rules and other protections against scrutiny by tax authorities, thereby preventing the effective exchanges of information on taxpayers benefiting from the low tax jurisdiction.

  5. Lack Of Transparency
  6. A lack of transparency in the operation of the legislative, legal or administrative provisions is another factor in identifying tax havens.

  7. No Substantial Activities

The absence of a requirement that the activity be substantial is important, since it would suggest that a jurisdiction may be attempting to attract investment or transactions that are purely tax driven.

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