An international watchdog group Monday included the U.S. Virgin Islands on a list of countries and territories it describes as tax havens.
The action by the 29-member Organization for Economic Cooperation and Development came just days after an international task force issued a list of 15 countries and territories it suggested were places for money laundering. The U.S. Virgin Islands did not appear on that list, and the OECD listing seems far less damning.
The OECD concerns apparently are with a small segment of the territory's financial services industry known as exempt companies. These are foreign corporations that are exempt from U.S. and V.I. income taxes but pay the local government an annual franchise tax of $1,000.
In a statement issued Monday from Paris where OECD members were meeting, Gabriel Makhlouf, chairman of its Committee on Fiscal Affairs, tried to soften the blow.
The group, he said, is committed to eliminating "harmful tax practices" and to promoting high standards of fair tax competition. "Today we alert 35 other jurisdictions that they fall short of these standards, but rather than condemning them, we set out a process by which they can move forward with us cooperatively."
Reportedly U.S. and U.S.V.I. representatives had been trying to keep the territory off the list.
U.S.V.I. Washington lobbyist, attorney Peter Hiebert of Winston & Strawn, said Monday, "We have not been formally notified, but we understand the (U.S.) Virgin Islands is on the list. We are working with the Treasury Department to assess the implication of being on this list."
The designation was especially puzzling to some territory officials, since the U.S. Congress expressly gave the Virgin Islands authority to host exempt companies as part of the Tax Reform Act of 1984. It required an implementation agreement between the U.S.V.I. and the U.S., and that was put in place in 1987.
Although public access to information about exempt companies – including their shareholders – is limited, the information is available to the U.S. and U.S.V.I. tax authorities. That would seem to be one major distinction between U.S.V.I. exempts and companies set up in traditional "tax havens."
"We really do monitor them," said Lorna Webster, chief of the corporate division. And "they have a very high penalty for not filing" an annual report and paying the annual $1,000 franchise tax. The penalty is $100 a month or any part of a month that the exempt has not paid its franchise tax.
Webster said 102 exempt companies are operating in the territory.
The list came as part of the OECD Report on Progress in Identifying and Eliminating Harmful Tax Practices.
The group was formed in 1961 by 20 countries and has since grown to 29. Members are Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.
Besides the U.S.V.I. countries on the tax haven list are: Andorra, Anguilla, Antigua and Barbuda, Aruba, the Bahamas, Bahrain, Barbados, Belize, British Virgin Islands, Cook Islands, Dominica, Gibraltar, Grenada, Guernsey-Sark-Aldemey: Isle of Man, Jersey, Liberia, Liechtenstein, Maldives, Marshall Islands, Monaco, Montserrat, Nauru, Netherlands Antilles: Niue: Panama, Samoa, Seychelles, St. Lucia, St. Christopher and Nevis, St. Vincent and the Grenadines, Tonga: Turks and Caicos, and Vanuatu.
