A little over a week ago the British parliamentarian, Sir Eric Pickles - a cabinet member until May of this year and a former Chairman of the Conservative Party - told the London Guardian that the British Prime Minister, David Cameron, was determined to have the BVI and the Cayman Islands adopt public registers of beneficial ownership either "through legislation, guidance or naked pressure".
His characteristically direct remarks followed a recent message sent from London to both Cayman and the BVI, instructing their governments to present an implementation plan by November.
What the UK wants is for its overseas territories to develop a central public register of names of those who have the controlling interest of companies and trusts registered in the islands. The UK's aim is to try to curtail tax evasion, money laundering and other activities by individuals, criminals and those who pose a threat to international security. The theory is that this will enable the discovery of the beneficial owners of offshore companies: information that the BVI and others say is already accessible under existing arrangements.
In a response, the BVI Premier made clear to the local media that he would not be rushed. The country's approach would be 'deliberate'. While consideration will be given to the recommendations of the British government, Dr Smith said that the concerns of the industry, the BVI, "and the wider industry in Hong Kong, and other parts of the world where BVI companies are used," will also be taken into account.
He also observed that financial services contribute about 60 percent of his country's GDP. Far from being the 'notorious tax haven' that had been suggested by international pressure groups, the BVI, he said, was listed as one of the best in the world, and was well regulated and run, with all activities well within the laws of the countries the islands work with. "This is why we sign tax information arrangements with every country that we do business in," he said
Premier Smith's remarks were little different, other than in context, from those made recently by the Prime Ministers of Barbados, Antigua and ministers from other Caribbean nations that also find their valuable offshore financial services industries under attack, and like the BVI and Cayman have been erroneously labelled as 'tax havens' by the European Union and by a number of states of the US.
Barbados' Prime Minister, Freundel Stuart, was particularly strong in his response, recently condemning what he described as the "the unjustified attacks of powerful nations that change the rules at will to satisfy the demands of their own onshore interest groups and constituents".
That said, the claim that that the BVI, Cayman and others are in popular parlance 'tax havens' reflects concern among many governments and electorates that most of the world's multinationals are diminishing their tax liability by taking their profits in no-tax offshore financial centres.
While what they and the offshore centres involved are doing is perfectly legal, the observations of two US think tanks, Citizens for Tax Justice and the US Public Interest Research Group are concerning. The two organisations reported that US multinational companies were holding over US$2.1 trillion in accumulated profits in 'tax havens', that 56 Fortune 500 companies would appear to be paying on average just 6.3 per cent in taxes, and that this was enabling them to take 'a free ride at the expense of taxpayers.'
In this respect the G20 group of major economies unveiled on October 5 a fifteen point package of measures drawn up by the Organisation for Economic Co-operation and Development (OECD). These aim to change rules dating back decades on how cross-border commerce is taxed by increasing transparency, closing loopholes and restricting the use of offshore financial centres by taxing economic activities where they take place and where value is created.
The OECD believes that the amount of untaxed money moved annually into offshore centres is in the US$100 billion to US$240 billion range and such profit concentration is resulting in significant losses in tax revenues.
But beyond this, the process of what is formally known as 'base erosion and profit shifting' has become so political an issue that the response to corporate tax avoidance is likely to figure increasingly in elections in many parts of the world including the US and Europe.
As the European Economic Affairs Commissioner, Pierre Moscovici, recently observed, 'electorates cannot stand anymore paying their fair share of taxes, and contributing to fiscal consolidation while companies, especially multinationals, avoid tax'.
Whether what is now being proposed comes to pass remains to be seen as it will be up to each G20 government to eschew excessive tax competition and develop and implement the necessary legislation and regulations, which are even then only likely to be as strong as in the weakest jurisdiction.
The independent Caribbean and the overseas territories have observably prospered from offshore financial services. They have expanded and diversified their products and outreach – for instance in the BVI's case into China though a Hong Kong office – and have been at the forefront of a process that Barbados' former Prime Minister Owen Arthur recently described as 'reimagining' the Caribbean economy.
Notwithstanding , the problem for the Caribbean is that it is faced with deploying factual and pragmatic arguments about its own development against those in much larger nations who, with some justification, are emotionally and philosophically engaged in a national debate about taxation, social equity and domestic politics.