Philippines, Malaysia to take measures to remove tax haven tag
The Philippines said Friday it will take needed steps to be stricken from a list of four nations blacklisted by the Organization for Economic Cooperation and Development as uncooperative tax havens, reported the Associated Press.
At the behest of the Group of 20 leaders meeting in London, the OECD named the Philippines, Uruguay, Costa Rica and the Malaysian territory of Labuan as the worst offenders, saying they had refused to adopt new rules on financial openness.
The list was made public as G-20 leaders from rich and developing nations declared at their summit Thursday that the age of banking secrecy was over, saying they would no longer tolerate shady havens draining away badly needed tax revenue.
"The Philippine government would take the necessary steps to ensure we meet their expectations," said Trade Secretary Peter Favila, also a member of the central bank's policy-making Monetary Board. "It is really up to us to prove them wrong."
Finance Secretary Margarito Teves said the government has a strong record of compliance with international financial but that existing domestic laws may have limitations that need to be reviewed by the Philippine Congress.
The move by the G-20 reflects mounting concern that banking secrecy in tax havens has helped to worsen the economic crisis by disguising the true value of some global assets. Anti-poverty activists say such places provide corrupt officials places to stash illicit funds, often depriving poor nations of needed resources.
The OECD has divided countries into three categories: those who comply with rules on sharing tax information, those who say they will but have yet to act and nations which have not yet agreed to change banking secrecy practices.
The G-20 leaders said nations that refuse to exchange tax information could in the future face tough sanctions — including the withdrawal of financing by the World Bank or International Monetary Fund.
Philippine President Gloria Macapagal Arroyo's spokesman, Cerge Remonde, said it was unfortunate that the country failed to meet the timetable for review and implementation of the internationally agreed taxation standard.
"We are committed to compliance with those standards and we are confident that we will meet the requirements for removal from this list," Remonde said.
Labuan, the other named uncooperative tax haven in Asia, was launched by Malaysia as an international offshore financial hub in 1990 with an investment of about $800 million.
The hub, on an island off the coast of Borneo, offers businesses big tax breaks, with trading companies having to pay a corporate tax of just 3 percent of their net profit or a fixed rate of 20,000 ringgit ($5,555) per year. In the rest of Malaysia, companies pay corporate taxes of 28 percent of net profit.
Malaysian Deputy Finance Minister Kong Cho Ha said the government will seek a clarification from the OECD because it has already taken steps to comply with the requirements.
The main issue is centered on "compliance in information sharing, which we have taken steps to fulfill. That also covers prevention of money laundering, which is at the center of the whole issue," Kong said.
The government has already sent letters to international bodies to explain the steps it has taken, he said.
China supported the blacklisting but would not agree to have two of its territories, Hong Kong and Macau, classified as uncooperative tax havens. Hong Kong's reputation as a tax haven stems partly from its low corporate and salary tax rates and generous personal deductions, said Deborah Annells, managing director at AzureTax, a tax consultancy in Hong Kong.
But in recent years the territory has toughened its surveillance of tax dodgers and reporting requirements, Annells said, who said Hong Kong's avoidance of the tax haven blacklist was a win for the territory as it increases transparency.
Hong Kong's top official disputed the territory was a haven.
"We have a very simple tax system, we have a low tax rate ... but it does not mean that we harbor irregularities in our system," said Chief Executive Donald Tsang, adding that Hong Kong was moving to strengthen its sharing of tax information to conform with international practices.
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