France blacklists four Pacific countries

Updated April 22, 2010 07:02:06

France has black-listed four Pacific countries as non-co-operating tax havens and hopes to use the up-coming G20 Finance Ministers meeting to encourage other wealthy countries to take the same action. The four countries affected are: Cook Islands, Marshall Islands, Niue and Nauru.

Presenter: Jemima Garrett
Speaker: Anthony McFarlane, tax specialist, Pacific Legal Network

MCFARLANE: If we take an example of withholding tax on French sourced income from 1 March 2010, dividends and interest paid into one of these black-listed countries, for example the Cook Islands or Niue or Nauru, are now subject to a withholding tax at a rate of 50 per cent. Whereas similar payments to other non-residents are only subject to withholding tax at a maximum rate of 25 per cent. So you can see there straightaway that profit would be eroded under that increased withholding tax rate.

GARRETT: Does the legislation distinguish between productive investment and investment made purely with tax advantages in mind?

MCFARLANE: The legislation seems to be fairly across the board in terms of being applied blindly against some of these countries. I do know with one of the provisions that will apply next year it asks investors and companies that are claiming tax deductions to show that they're not shifting profits to tax haven countries before they're allowed the tax deduction. That in terms of other specific examples I can't say.

GARRETT: French companies invest in a wide range of industries in the Pacific; tourist for instance springs to mind as a big one. What impact will the French measures have on investment in those sorts of areas in the four blacklisted countries?

MCFARLANE: One of the impacts will be a shift in emphasis to countries that are cooperating, especially with France, in this new hunt against tax haven countries. But I think you'll find that these companies investors are going to go back to the drawing board and work out whether the Finance Ministry and the French tax authority can insert some exemptions to these provisions.

GARRETT: How can Pacific Island countries get off France's blacklist?

MCFARLANE: Unfortunately until 1 January next year these four Pacific nations seem to be stuck on the list as it stands. But basically one such way would be to enter into a bilateral agreement with France agreeing to cooperate on tax matters and being more transparent generally with France.

GARRETT: That's not that easy, it's a fairly complicated business, just how long would that take?

MCFARLANE: I can't give you any exact sort of timeframe but yeah, in terms of the administrative efforts that have to be put in place it's no small task for some of these developing countries that would struggle to bring together the resources necessary.

GARRETT: France is urging other G20 countries to follow its lead. What chance does it have of success?

MCFARLANE: I know that Christine Lagarde, who was one of the main proponents of this legislation in France will be attending the G20 meeting later this week. I know in the past she has been lobbying Germany for instance, and Germany has indicated its support for such a blacklist that France has now come out with. Although there's nothing official that I've seen on agenda items to talk about these matters, I'm sure that France's blacklist will be a topic of conversation, especially with countries like Germany who have been supportive in the past.