Campaigners demand further action on tax evasion by G20

ZURICH/LONDON (Reuters) - G20 countries need to get their own houses in order if they are to complete the job of fighting tax evasion after taking the initial step of naming and shaming bank secrecy strongholds, campaigners said.

Global leaders declared at their summit last week that the era of banking secrecy was over. They threatened sanctions against the 40 or so tax jurisdictions named by the Organization for Economic Cooperation and Development (OECD) as laggards that have not yet substantially implemented an internationally agreed tax standard aimed at helping tackle evasion.

Campaigners against tax evasion said the G20 declaration was a vital first step to reclaiming unpaid tax but the fight should now be taken directly to major tax havens linked to Britain and China, which appeared to have been left off the OECD's list.

"We need more steps in the direction of better tax transparency," said Bruno Gurtner, a co-founder of lobby group Tax Justice Network and chairman of its global board.

"The UK dependencies have dropped off the list. And so have Macao and Hong Kong. This is only possible if there are double standards," he added.

The OECD list, an improved version of a previous one drafted in 2000, has a "grey" section for countries that have pledged to share tax data but have not yet done so and a "black" section for those that have not showed any commitment.

Observers and campaigners said significant horse-trading went on before and during the summit resulted in anomalies.

Luxembourg described the list as "fatuous." Prime minister and finance minister Jean-Claude Juncker said: "I find the treatment of certain states to be incomprehensible."

Switzerland, the world's largest offshore center with an estimated $2 trillion in offshore wealth but not a G20 member, appears on the grey list together with some large European bank secrecy havens, including Luxembourg, Liechtenstein and Monaco.

But Jersey, Guernsey and the Isle of Man were left off the list, as was China's Special Administrative Regions of Hong Kong and Macao, which only got a reference in a footnote even though they'd only "committed to implement" the internationally agreed tax standard.

"One of the goals of China is to look very accountable and respectable. They would not want their special territories to be an object of shame," said Jacques Terrain, policy officer at Transparency International France, an international anti-corruption campaigning group.

WEAK STANDARDS

Tax experts say the revised OECD list of tax havens is a better effort than its previous one, which never got the full support of former U.S. President George W. Bush.

But while his successor Barack Obama looks willing to stamp out tax evasion, the OECD standards may still be too weak for that to be achieved, campaigners said.

The main criterion for being taken off the black list is that countries sign at least 12 bilateral fiscal treaties that involve some exchange of information in tax evasion.

But the OECD does not call for automatic exchange of tax data or request bilateral treaties with major countries.

Jersey, a major offshore center that is considered compliant by the OECD, has boosted its quota of bilateral tax treaties by clinching deals with Greenland and the Faroe Islands.

"(The G20's move) is not going to break down banking secrecy. We took a step forward, but not a huge step," said Richard Murphy, a chartered accountant and a director of Tax Research, which campaigns for greater tax accountability.

While hailing the G20 as a success, British Prime Minister Gordon Brown admitted in a letter to OECD Secretary General Angel Gurria just ahead of the summit that more needed to be done on tax, two people who have seen the letter told Reuters.

In the letter, Brown singled out tax avoidance and the billions of dollars of tax revenues yearly lost by developing countries as the next two issues needed to be addressed.

Unlike tax evasion, which is a crime resulting from not declaring taxable income, tax avoidance uses tax-efficient arrangements and exploits loopholes in the legislation to minimize the overall level of tax paid.

"There is a line between evasion and avoidance, but it is a line that can become very blurred," said John Whiting, tax partner at PricewaterhouseCoopers.

Commonly used avoidance vehicles include trusts, particularly off-shore, such as in the Channel Islands, as tax shelters, and so-called U.S. Delaware firms, which can be set up at the click of a mouse and often hold assets in opaque financial centers with little supervision.

(Editing by Guy Dresser)