March 13, 2002 – The Paris-based Organization for Economic Cooperation and Development has removed the territory from its list of "uncooperative tax havens."
In a Government House press release Tuesday, Gov. Charles W. Turnbull said he was pleased with the OECD's decision to remove the territory from the list. He said his administration's position has been "that the Virgin Islands should never have been on the list of so-called harmful tax havens in the first place."
The OECD, an international organization formed to help governments "tackle the economic, social and governance challenges of a globalized economy," announced on Monday that "the U.S. Virgin Islands has committed to cooperate in the OECD's efforts to address harmful tax practices."
In a release posted on its web site, the organization continued, "The U.S. Virgin Islands was among 35 jurisdictions identified by the OECD in a June 2000 report as meeting the technical criteria for being a tax haven. As a result of having made a commitment, the U.S. Virgin Islands will not be listed as an uncooperative tax haven." The territory was among 17 such jurisdictions removed from the "uncooperative" list.
To access the OECD release, go to "U.S. Virgin Islands Commits to Co-operate with OECD to Address Harmful Tax Practices".
Turnbull in his Tuesday press release said the territory's law allowing tax exemptions to foreign-owned companies calls for financial information about the companies to be exchanged with the U.S. Treasury Department.
"Our program was specifically authorized by Congress and was specifically intended to provide multinational corporations with legitimate business and tax-planning opportunities," he said. "It was not and is not intended to facilitate tax evasion, money-laundering or other illicit activities through secrecy or by discouraging cooperation with foreign tax authorities."
V.I. attracts airplane-leasing firms
About 125 foreign-owned companies receive tax benefits in the Virgin Islands under a 1987 law enacted by Congress, according to attorney Peter Hiebert of the government's Washington, D.C., law firm, Winston & Strawn. Most of those companies are in the airplane-leasing business, and incorporation in the territory allows them to receive Federal Aviation Administration certification, he said.
The V.I. government sees the tax-exempt law as part of the territory's effort to develop a financial services industry, Hiebert said.
According to Turnbull, the approximately 125 exempt companies in the territory are "other than exempt international insurers which have extensive financial reporting requirements."
What got the Virgin Islands onto the "uncooperative tax havens" list two years ago were the economic principle of "transparency" — the ability of regulators to guarantee that banking clients have no hidden agendas — and the effective exchange of information between nations.
The OECD is in the process of setting global standards by which cooperating countries' banking and tax policies will operate within a legal framework recognized worldwide. With the help of Winston & Strawn and St. Thomas attorney Marjorie Roberts, a member of the administration's Tax Study Commission, the governor convinced the OECD its tax policies are legitimate. "I think there wasn't an understanding that the U.S. Virgin Islands couldn't do anything without federal legislation," Roberts said.
The territory's Tax Implementation Agreement reached with Washington in 1987 contains a compulsory reporting requirement that makes it possible for the federal government to obtain information on any individual or company enjoying tax breaks by doing business through the territory. In removing the territory from the "uncooperative" list, Turnbull said, "the OECD acknowledged that the Virgin Islands already satisfied … requirements with respect to exchange of information between national tax authorities."
Who is and isn't on the list
According to the OECD's posted Tax Haven Update, prior to issuing its 2000 Progress Report, Bermuda, Cayman Islands, Cyprus, Malta, Mauritius and San Marino "made commitments to cooperate with the OECD in addressing harmful tax practices." The report identified 35 other jurisdictions as "meeting the OECD criteria for being considered a tax haven."
Since then, the OECD has accepted commitments from 17 of the jurisdictions that were named, and these "will not be included in the list of Uncooperative Tax Havens to be issued shortly," the web site states. The 17 are Anguilla, Antigua and Barbuda, Aruba, Bahrain, Dominica, Grenada, Guernsey, Isle of Man, Jersey, Montserrat, Netherlands Antilles, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, the Seychelles, the Turks and Caicos and the U.S. Virgin Islands.
The other 18 jurisdictions included on the 2000 list are Andorra, the Bahamas, Barbados, Belize, the British Virgin Islands, the Cook Islands, Gibraltar, Liberia, Liechtenstein, the Maldives, the Marshall Islands, Monaco, Nauru, Niue, Panama, Samoa, Tonga and Vanuatu.
In a March 4 letter to the secretary-general of the OECD, citing input from Hiebert and Roberts, Turnbull said it was his understanding that the U.S. government had provided the organization "with information indicating that effective exchange of information with respect to the USVI is already available to foreign countries" through federal law, treaties and tax information agreements.
With regard to transparency, Turnbull added, "the USVI substantially meets the standards set out by the OECD." He said V.I. authorities "have access to beneficial ownership for all entities incorporated or organized in the USVI, either directly or through USVI-based resident agents who are required to maintain that information. USVI authorities also have access to bank information."
He added, "It is not clear whether the current USVI rules requiring the maintenance, filing and/or auditing of accounts with respect to exempt companies will fully meet the standards" to be developed by 2005. But, he said, the V.I. government "is committed to reviewing its account filing or audit requirements with the objective of ensuring, where this is not already the case, that by Dec. 31, 2005, they meet the standards."
OECD member nations are Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, The Netherlands, New Zealand, Norway, Poland, Portugal, South Korea, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.