Unilateralism fails – just displaces the problem rather than solving it

IV. Recommendations to intensify international co-operation in response to harmful tax competition

138.Although one country’s actions can be influential in curbing harmful tax practices, it is difficult for the actions of any single country to eliminate harmful tax practices. In fact, for many reasons, individual countries may not have a strong incentive to take action against harmful tax practices since, by so doing, they can worsen their position relative to where they would have been if they had not acted at all. For example, as a result of some of the defensive measures an individual country takes to counteract harmful tax practices, the targeted activity may simply move to another location that is not taking measures to combat such practices. Thus, individual actions do not completely solve the problem; they may merely displace it. For this reason, a multilateral approach is required and the OECD is the most appropriate forum to undertake this task.

139.The present Report provides a useful starting point for improving international co-operation to counter harmful tax competition. The effectiveness of many of the Recommendations concerning domestic legislation and tax treaties described in sections II and III will depend to a large extent on whether the measures concerned can be taken in a co-ordinated fashion. As explained in the introduction to this Chapter, a co-ordinated response to the problem of harmful tax competition will greatly reinforce the effectiveness of unilateral measures. Such a response will involve a number of elements, the most important of which are:

− The adoption of a set of Guidelines (reproduced in Box III) intended to ensure that Member countries refrain from adopting preferential tax regimes constituting harmful tax competition and gradually eliminate those harmful preferential tax regimes that currently exist;

− The creation of a subsidiary body of the Committee, the Forum on Harmful Tax Practices, to allow, among other things, for an ongoing discussion of experiences with the problems posed by tax havens and harmful preferential tax regimes and of the effectiveness of measures taken in response to such practices. The Forum will monitor the implementation of the Recommendations set out in the earlier sections of this Chapter and the accompanying Guidelines as well as;

− The preparation of a list of jurisdictions constituting tax havens; and

− The development and active promotion of principles of Good Tax Administration relevant to counteracting harmful tax practices.