Originally published in April 2002

Following an announcement on 27 March 2002 that the Cook Islands would not be included on the next published list of unco-operative "tax havens", the OECD did on 18 April 2002 publish that list and the Cook Islands was removed.

The OECD’s announcement was in response to the Prime Minister of the Cook Islands signing a letter addressed to the OECD committing the Cook Islands to a programme of effective exchange of tax information and fiscal transparency in relation to its companies, trusts, partnerships and other legal entities.


In June 1998 the OECD listed 35 countries as meeting its criteria for being tax havens carrying on harmful tax practices. The OECD had earlier defined a "tax haven" as a jurisdiction that:

  • imposes no or nominal tax;
  • has a lack of effective exchange of information infrastructure;
  • has a lack of transparency;
  • has an absence of substantial local business by foreign enterprises which pay nil or nominal taxes.

The listed jurisdictions were given until 31 July 2001 to make a political commitment to eliminate these characteristics or face "defensive measures" from OECD member countries and committed jurisdictions.

The scope of the OECD initiative and the deadline were subsequently amended. Following the publication of the initial list and the ensuing discussions held between the OECD and listed jurisdictions, the OECD discovered that the "ring fencing" aspects of its initiative would be impossible to eliminate as several of the larger more prominent OECD members carried out such practices in one form or another, usually for the same reasons a listed jurisdiction might, to encourage foreign investment and generate government revenue.

Having realised the difficult position in which OECD countries would be placed, and the understandable resistance it would encounter from listed jurisdictions, the OECD dropped the ring fencing aspects of the initiative meaning listed countries would now only be required to commit on matters of exchange of information and transparency.

It also became apparent that OECD member countries were not being held to the same standards as listed jurisdictions in respect of exchange of information and transparency. Listed

jurisdictions, and in particular the Cook Islands, argued strongly that the same commitments should be made by all jurisdictions, listed or otherwise. The OECD realised that a level playing field was critical to the success of its initiative given the real competition existing among OECD and non OECD member countries in the provision of financial services.

The OECD’s Progress Report of 2001 confirmed the modified scope of the initiative and also emphasised that OECD member countries would be required to meet the same standards as listed jurisdictions in these respects.

In recognition of these significant and necessary changes, the Cook Islands government saw the way clear to commence negotiating a commitment with the OECD.


At all times during its discussions and negotiations with the OECD, the Cook Islands government made it abundantly clear that fundamental to any commitment would be the protection of Cook Islands sovereignty, economic interests and fiscal autonomy and the requirement of a level playing field for all OECD members and committed jurisdictions. The Cook Islands commitment reinforces this position by effectively making all future negotiations with the OECD with respect to exchange of information and transparency conditional upon these crucial factors at all times being acknowledged and protected.

A. Exchange of Information

The Cook Islands has agreed to enter into tax information exchange agreements which shall become effective for criminal tax matters for the first tax year after 31 December 2003 and for civil tax matters for the first tax year after 31 December 2005.

The agreements to be negotiated will include protections against unauthorised disclosures, unauthorised use of information and "fishing expeditions". Such information will not be provided where the requesting party cannot obtain such information under its own laws for the purposes of enforcing its own tax laws.

B. Transparency

i) By 31 December 2005 information on the beneficial ownership of companies, trusts, partnerships and other legal entities will be available to Cook Islands tax and regulatory authorities.

partnerships and other legal entities will be

ii) The Cook Islands will require accounts to be kept by companies, trusts, partnerships and other legal entities.

iii) Cook Islands regulatory authorities will have access to bank account information relevant to tax matters to the extent necessary to perform obligations under tax information exchange agreements.


The Cook Islands commitment will, over the next three and half years, see a programme of discussions and negotiations put in place with OECD member countries and other jurisdictions that have made similar commitments, to develop and finalise tax information exchange agreements, whether bilateral or multilateral, and mutually acceptable standards of fiscal transparency.

Whilst the details of such agreements have not yet been considered, the parameters have been set. The finalised agreements will not result in open access to all or any client files for any foreign tax or regulatory authority. There must be in place a tax information exchange agreement between the Cook Islands and the jurisdiction of the requesting party. The terms of the specific agreement must be complied with at all times. The request will need to be in relation to a civil or criminal tax matter in the requesting party’s home jurisdiction. The requesting party will only be able to obtain information that they could rightfully obtain in their own jurisdiction.

Where the specific tax information exchange agreement provides, the requesting party may have access to financial and beneficial ownership information in relation to the particular company, trust, partnership or other legal entity.

The Cook Islands has a history of being proactive in the prevention of the use of its offshore industry by criminals and fraudsters. This commitment is another positive step in that regard. Under existing Cook Islands anti-money laundering laws, beneficial ownership details must be disclosed by the relevant trust company to the Cook Islands regulatory authority where an appropriate request is made.

It appears the trust company will now be required to make such information available to the Cook Islands regulatory authority if properly requested pursuant to a civil or criminal tax matter.

It is important to remember that at any time before or after tax information agreements are finalised, where the Cook Islands government believes that the terms of its commitment are not being adhered to, i.e. there is not a level playing field amongst all jurisdictions and the sovereignty, economic interests and fiscal autonomy of the Cook Islands may be prejudiced, it has effectively reserved the right to withdraw from its commitment.


The Cook Islands commitment is the result of much dialogue, patience and careful consideration of its international and domestic responsibilities. The Cook Islands has not allowed itself to be bullied into making any rash decisions or early commitments. The Cook Islands government actively sought dialogue with the OECD to ascertain all relevant information and details from the OECD and other listed jurisdictions. When the time was right for the Cook Islands a commitment was made on terms that the Cook Islands saw as recognising and preserving its interests while accepting the need for international responsibility and cooperation.

The Cook Islands government’s considered and responsible approach to a difficult situation is to be admired. Of the 35 jurisdictions originally listed by the OECD, seven have yet to make the required commitment. Significantly, these are smaller, less developed offshore jurisdictions. All of the "big players" originally on the list, such as the Bahamas, British Virgin Islands and Jersey, have made a commitment to the OECD on very similar terms to the Cook Islands. It is reasonable therefore to assume that in the not too distant future all onshore and offshore business for all OECD members and committed jurisdictions will be carried out under the same terms in respect of exchange of information and fiscal transparency. Those who do not make an appropriate commitment will face a "co-ordinated framework of defensive measures", essentially banking and financial restrictions, that could do irreparable damage to their domestic economies and international reputations.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.