Thomas White Global Investing
Philippines Stamp
April 10, 2009
A Postcard from the Asia Pacific
Philippines: OECD Delivers Wake-Up Call

Philippines was blacklisted by OECD

The Philippines central bank reacted to the OECD blacklist by saying that its existing laws, including the Anti-Money Laundering Law, were enough to prevent tax cheats from using Philippine banks to avoid taxes.

These are just not the best of times for the beautiful island nation, the Philippines. Its troubled southern regions have witnessed renewed fighting, with militants belonging to the Abu Sayyaf capturing three employees of the Red Cross. Adding to this, the country’s export-reliant economy is expected to grow a mere 2.5% this year, and then the Organization of Economic Cooperation and Development (OECD) added the Philippines to its list of ‘uncooperative tax havens.’

Following the G20 warning that the days of ‘shady tax havens’ were over, the OECD was prompt to answer the call for greater transparency in international financial services, by drawing up a list of countries within its 30-member jurisdiction who had failed to comply to the internationally agreed tax standard.

The Philippines was branded along with three other countries including Malaysia (Labuan), Costa Rica, and Uruguay as jurisdictions that have not committed to the tax standard. The international tax standard was first developed by the G20 in 2004, and it requires the exchange of information upon request for any tax matter to enforce domestic tax law without regard to tax interest requirement or bank secrecy.

The OECD blacklisting took people in the Philippines by surprise, with reactions ranging from promises of betterment to outrage. Philippine Congressional Speaker Nograles angrily stated that the Philippines was once again being used as a ‘punching bag’ for the ills of the world.

Complaints aside, Philippine officials were compelled to roll up their sleeves and take on the task at hand. The G20 also warned of sanctions against those countries that continue to function as tax havens. This was enough to spur Press Secretary Cerge Remonde’s comments that the blacklist will be considered a ‘wake up call’, which will motivate other branches of government to take action. Remonde was equally quick to promise swift compliance, assuring an angry domestic media that the government will work diligently to ensure that reforms meet the international tax standards. But it was Trade Secretary Favila who eloquently summed up the Philippine spirit. In his response, he took the blacklisting as a challenge: “It is really up to us to prove them wrong.”

In the end, this story had a happy ending. The Philippines, apparently, did succeed in proving the OECD wrong. Following assurances from the four jurisdictions, the OECD agreed to remove the countries from the blacklist. The Philippines was moved into a ‘grey’ list of countries that have committed to the international tax standards but have not fully implemented them. Now, its next step is to move into the ‘white’ list of countries that have fully implemented these tax standards. As European Union Commissioner for Taxation and Custom Union Laszlo Kovacs told the Wall Street Journal, assurances are fine, but quick implementation is what everyone is interested in. The Philippines has woken up. Now, it needs to deliver.


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