Luxembourg has failed to live up to international standards on transparency, according to an authoritative global assessment that is set to pile more pressure on to a shrinking number of tax havens.
Cyprus, the British Virgin Islands and the Seychelles were also branded non-compliant by an international team of assessors examining the practical obstacles faced by countries seeking to track down tax cheats.
The findings, unveiled at a meeting of more than 80 countries in Jakarta, are expected to put pressure on laggards to announce further reforms. The ratings are an embarrassing setback for the financial centres and could expose them to a risk of blacklisting by tax authorities and development banks.
The four countries were found to have sufficiently robust legislation to meet international standards on transparency but they have done too little to put it into practice. Switzerland was one of 14 countries that lagged even further behind because of shortcomings in its laws and regulations. Other countries falling short included Botswana, Brunei, Nauru, Panama, United Arab Emirates, Liberia and Vanuatu.
Two other countries – Austria and Turkey – were deemed partly non-compliant under the system of peer reviews set up by the global forum on transparency. This group of 121 countries, organised by the Paris-based Organisation for Economic Co-operation, is driving the crackdown on secrecy launched by the G20 group of leading countries in an effort to boost tax collection in the wake of the financial crisis four years ago.
Luxembourg’s appearance on a list of non-compliant countries is a blow for a jurisdiction that announced plans to ease its bank secrecy rules in April after coming under heavy pressure from other EU countries, particularly Germany, over the opacity of its €3tn-plus financial sector. The review criticised the Grand Duchy for not using its information gathering and enforcement powers to obtain requested information “in all instances”.
The British Virgin Islands, home to 850,000 offshore companies and the centre of an evasion scandal sparked by leaked data this year, was marked down because “in a significant proportion of cases the responses to exchange of information requests were incomplete”.
The BVI said the “non-compliant” rating – which was based on historical data taken from June 2009 to July 2012 – “misses the mark” as it did not accurately reflect changes in its practices introduced in mid-2012.
The classification of Cyprus as non-compliant comes after controversy over its role in facilitating evasion that was highlighted during bailout talks concerning its banking crisis earlier this year. The Seychelles has also acquired a reputation for opacity following a rapid growth in its registration of offshore companies in recent years.
Many financial centres, including the US and UK, were deemed largely but not fully compliant. Fewer than half the countries reviewed met the required standards on providing ownership information.
The push for greater transparency was kicked off in 2009 when a requirement to exchange tax information on request started to prise open secretive jurisdictions. The transparency drive is set to move up a gear after the G20 declared in September that it expected countries to agree to automatic exchange of information.