Washington Six offshore locations popular as tax havens in the United States and Europe have promised within five years to end the practices that gave them that reputation.
Treasury Secretary Lawrence Summers called the announcements an "important milestone" in the international effort to curb use of offshore subsidiaries, bank accounts and other arrangements to avoid taxes.
"In today's global economy, it is vital that we put an end to international tax practices that encourage tax evasion and improper tax avoidance and that distort capital flows," Summers said in a statement Monday.
The commitments from Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius and San Marino -- an enclave within Italy -- came in letters to the 29-nation Organization for Economic Cooperation and Development, a Paris-based body of developed countries that next week is expected to release a list of jurisdictions identified as places that offer laws "to be used by nonresidents to escape taxation" in their home countries.
This list could eventually be used as the basis for international sanctions or other punitive action against identified tax havens and private companies operating there. The commitments mean these six countries won't be on that list -- and Bermuda and the Cayman Islands are considered two of the "most notorious" tax havens worldwide, a senior treasury official said.
Each of the six letters pledges that by the end of 2005 harmful tax practices will be eliminated, that international standards for fair tax competition, transparency and disclosure will be adopted and that no new harmful tax regime will be imposed.
Due to their secretive nature, there are no firm estimates of U.S. tax losses caused by offshore havens. Britain estimated recently that it loses about $1.6 billion a year, and much concern has been raised about the $500 billion deposited by foreign financial institutions in the Cayman Islands.