OECD Views on Tax Competition: A Critical Appraisal Montreal 17 September 2007 Richard J Hay STIKEMAN ELLIOTT LLP

STIKEMAN ELLIOTT LLP | SLIDE 1 Presentation Summary > key elements of tax competition > OECD and the politics of tax competition > “Harmful tax competition” > OECD and tax havens > DTAs as an antidote for the cross-border tax barriers

STIKEMAN ELLIOTT LLP | SLIDE 2 Elements of Tax Competition > rate > base (income or consumption, scope) > reach (worldwide or territorial) > model (redistributive?) > international interface

STIKEMAN ELLIOTT LLP | SLIDE 3 OECD > consensus process > 30 sovereign members > US / Europe are the principal constituencies > generally pro competition in its work > non-members are designated as “participating partners” in its work on tax competition

STIKEMAN ELLIOTT LLP | SLIDE 4 US Policy on Tax Competition > US states have long tradition of competition in tax / company law > US taxes are 27% of GDP > Europe averages 38% of GDP in tax > 2001: Republican criticism of OECD Harmful Tax Competition Initiative triggers change of policy (and Report name) > : US concern over corporate “inversions” into Bermuda

STIKEMAN ELLIOTT LLP | SLIDE 5 EU Policy on Tax Competition > diverse and complex > tax competition seen as compensation for geographic or structural differences (Madeira, Ireland, Luxembourg) > “offensive” or “defensive” measures? > EU “Code of Conduct” condemns “ring fencing” (contrast US / OECD position) > “salami slicing” is permitted > general low tax rates are acceptable (e.g. Ireland)

STIKEMAN ELLIOTT LLP | SLIDE 6 OECD Approach to Tax Competition > 1998: Harmful Tax Competition Report > concerns over “poaching” the tax base that “rightly” belongs to another country > countries are free to design their own tax systems… > “which abide by internationally accepted standards” > tax information exchange (on request)

STIKEMAN ELLIOTT LLP | SLIDE 7 “Harmful” Tax Competition > eroding the tax bases of other countries > diverting mobile investment from one country to another > “distorting” trade and investment patterns > failing to provide tax data for enforcement by other countries > project focus on information exchange by havens

STIKEMAN ELLIOTT LLP | SLIDE 8 OECD and Tax Havens > 1987: “Any country can be a tax haven in relation to a particular situation. Attempts to provide a definition are bound to be unsuccessful” > 1997: no or nominal taxes are a necessary (but not sufficient) indication of tax haven. Havens are identified and listed > 2002: commitments to transparency and information exchange > 2006: OECD Report on Level Playing Field

STIKEMAN ELLIOTT LLP | SLIDE 9 Top Global Economies, GDP per person 2006 estimate, $‘000 SOURCE : CIA World Factbook

STIKEMAN ELLIOTT LLP | SLIDE 10 The Rap Sheet on “Tax Havens” > world tax rates are forced down by “unfair” tax competition > havens are predatory, distorting global economic activity > havens impoverish developed countries, jeopardising tax funding for public services > havens shift tax burdens from corporations to individuals

STIKEMAN ELLIOTT LLP | SLIDE Sources: OECD; Institute for Fiscal Studies More for less Corporate tax rates versus Revenues in developed countries 20% 25% 30% 35% 40% Average corporate tax rate* * Unweighted average 2.5% 3.0% 3.5% 4.0% 2.0% Corporate taxes % of GDP

STIKEMAN ELLIOTT LLP | SLIDE 12 Tax Competition: Boon or Bane? > effective competitors are always an irritant to other market participants > competition is a healthy, liberalising force > tax competition promotes discipline and efficiency in public sector expenditure > does competition from low tax jurisdictions increase economic activity in neighbouring states?

STIKEMAN ELLIOTT LLP | SLIDE 13 Tax Competition and Double Tax Agreements > tax competition and barriers to cross border commerce > tax information exchange agreements vs. DTAs > will tax havens normalise relations with OECD states as they adopt international tax and regulatory standards? > should tax barriers be lowered for tax havens to permit full tax competition? > Canadian proposals are seen as novel and interesting

STIKEMAN ELLIOTT LLP | SLIDE 14 DTAs and Low / No Tax Jurisdictions > should OECD countries do DTAs with low/no tax centres? > the UAE experience > DTA relief is generally available between OECD countries for untaxed income in “participation” regimes, and for tax exempts > OECD may find it easier to work with its “participating partners” if there is an exchange of value

STIKEMAN ELLIOTT LLP | SLIDE 15 OECD and Tax Competition > “fair” tax competition is encouraged, but what is fair? > differing views in a complex political context > “level playing field” is a greater problem than anticipated > will OECD encourage its members to lower tax barriers for smaller countries as they facilitate tax information exchange?

QUESTIONS & ANSWERS Richard Hay STIKEMAN ELLIOTT LLP |