Tax Competition relates to the phenomenon where a sovereign state having the ability and competence tends to affect the tax system of another country intentionally or unintentionally by incorporating various tax differentials in its domestic tax system.

1 Chapter: Introduction
1.1 How Can A Competition Be Harmful?
Tax Competition relates to the phenomenon where a sovereign state having the ability and competence tends to affect the tax system of another country intentionally or unintentionally by incorporating various tax differentials in its domestic tax system. When Such Differentials are a result of intentional (malafide) actions in order to distort and erode tax system of other countries are referred to as Harmful Tax Practices.
The initiative to curb such harmful tax competition has been taken previously by many Nations, jointly and by incorporating scope in their domestic tax system, so as to benefit them by providing a Level Playing Field.
Organisation for Economic Co- Operation and Development (OECD) through its Report[1]- Harmful Tax Competition in 1998 which was endorsed by G7 Countries also (The Report), European Union had also adopted measures[2]to tackle such competition on December 1st, 1997 via Report-A package to tackle harmful tax competition in the European Union,etc, are a few examples which convey the essence that Harmful Tax Competition is distorting not only tax systems of nations but also the investment patters, future projections, trade and incidental activities.

1.2 OECD- Tackling Tax Competition
The Convention as signed on December 14th, 1960 in Paris in its I Article bestows responsibility on OECD to promote policies designed in a way so as to conquer high sustainable economic growth and fight unemployment, promote sound economic expansion and carry expansion of trade globally on a multilateral platform.

In 1996 Ministers called upon OECD to fight and solve the distorting consequences and effects of harmful tax competition by 1998 a report the same, thus a report was prepared titled- Harmful Tax Competition an Emerging Global Issue which was approved on April 9th, 1998.

The Report has addressed issues relating to harmful tax practice in form of Tax Havens[3], Preferential Tax Regimes in member as well as non- member countries and has also provided measures for the same. It majorly focuses on geographically mobile activities. The comprehensive features as given in the report which shall help to sculpt out the harmful jurisdiction are in classified under 19 recommendations.

The Report illustrates how Tax Haven & Harmful Preferential Tax regimes, collectively called Harmful Tax Practices affect the following:
¼Location of Geographically Mobile Activities specifically dealing with finance
¼Erode Tax Bases[4]of Other Country
¼Distort trade and Investment projections
¼Threatens fairness, neutrality along with wide Socio acceptance of tax system generally.

If such competition isn’t uprooted it shall undermine global welfare and rupture taxpayer’s confidence.

1.3 European Union’s Package To Tackle Tax Competition
Work, similar to that of OECD was carried out in European Union (EU) and on December 1st, 1997 certain measures were adopted to counteract Harmful Tax Competition in order to assist and remove distortionary trends in single market, losses of potential tax revenue and to re-establish tax structure in an employment oriented manner.

A package to tackle harmful tax competition in the European Union Provides for Code of Conduct for following sectors of economy:
¼Business Taxation
¼Taxation on savings
¼Issue of retaining taxes on cross- border interests and payment of royalty between Nations

1.4 Ultimate Rescue
At every point of time where a Nation or group of Nations has though of tackling tax competition following have been the essential constituents forming the structural base of the report;
¼Principles governing current arrangements relating to International Taxation
¼Factors, which shall discover an existing jurisdiction to be Tax Haven or Harmful Preferential Tax Haven
¼Measures to Counteract such harm

2 Chapter: Differential Taxing – Hampering Tax Competition
2.1 historic Tax Approach
Historically, tax policies and systems were developed looking at the need at domestic level and undertaking socio- economic concerns which has further accommodated various other factors.

While residence tax systems of essentially closed economies also had an international side where they potentially affected the gross tax amount imposed on foreign source income of resident taxpayers and typically included in the tax base the domestic income of non-residents, the connection of domestic tax systems was comparatively immaterial, given the limited shift of capital. The rate of tax whether to be set as low or high, or ascertaining o government spending or public outlay was dependent, totally, on the basis of Nation’s concern and domestic affair. International effects were generally limited.

Scenario- Post Globalisation
Post globalisation the need to reform tax systems was realised. Subsequent to Multinational Enterprises entering into global markets a dire need to re-establish tax policies was felt so as to safeguard resident tax payer and keep interest of investors safeguarded.

As the capital markets started widening and expansion took place capital flow was not only limited to one jurisdiction but it met enhanced cross border flows.Globalisation was soon realised to have brought in negative effects. It has introduced several ways to minimise tax liability by providing opportunities which were easy to exploit and also diverted finance, trade, etc.
Entities took huge benefit of free riders[6]. Entities settled their businesses in tax havens or preferential regimes; paid no or low rate of tax. Simultaneously, same entities also reaped the benefit of infrastructure and utilities at residence country, free of cost.

Tax Competition was not seen as a negative effect till the time a country was generating sufficient revenue from its tax base, but many countries found it to be unfavourable and thus demanded reforms.
Even certain unintended mismatch took place where a Nation without deliberately but due its domestic policies or in order to generate employment or other factors which influence mobility of activities, devastated other tax systems by eroding their tax base.

Unlike the above scenario, many countries wanted to redirect financial flow (capital) and attract revenues from other regimes by distorting their tax base, same has been refered to as poaching of tax bases.
The report has laid down 6 ways (majorly) by which countries realised the potential of causing effect to other jurisdictions.

Potential harm to Tax Bases of other Jurisdiction
(1) Disturbing financial and thereby affecting real investment flows[7];
(2) Distorting integrity and fairness of tax Systems;
(3) Discouraging Tax compliances;
(4) Re-shaping the desired level and mix of taxes and public spending;
(5) Making undesired shifts of part of the gross tax burden to less mobile tax bases, such as labour, property and consumption; and
(6) Increasing administrative costs and compliance burdens on tax authorities and taxpayers.

Justification of source country taxation[8]is disputed when related to harmful tax practices. Resident countries can still adjust their tax policies to curtail negative effects of economic behaviour which directly affect the foreign entities or non- residents, as the case may be, benefitting from such harmful practice regimes.

It has been observed that some investors tend to invest in a jurisdiction where rate of tax is low disregarding services being offered by the State whereas; on the other hand a few investors prefer investment to places where better services are being offered even if the tax rates are higher. Therefore, choice of location is not a resultant of tax savvy jurisdiction but other factors too which this report has not taken into account.
For example, FDI by G7 countries in multiple jurisdictions in the Caribbean and in the South Pacific island states, which are known to be low-tax jurisdictions, became multi-fold over the period 1985-1994, to more than $200 billion, a rate of increase well in excess of the growth of total outbound FDI.

Thus, distortion in capital and financial flows must be checked so as to create a healthy tax competition which would mean location of mobile activity or shift of such activity taking into account any factor but not taxation for setting up business.

3 Chapter: Diagnosing Harmful Tax Jurisdictions
3.1introduction
This chapter deals with factors that help in identifying Harmful Preferential Tax Regimes and Tax Heavens in member and non- member countries.
Following are distinct three categories of situations where entities translocate after considering tax rates in any specific jurisdiction:
(1) First country being a Tax Haven[9]; imposing no or a very low rate of tax
(2) Country having Preferential Tax Regime for certain activity
(3) Where a comparative lower rate of tax could be found

Globalisation didn’t only leave a negative impact but has also lead to positive results. It has made countries reform their tax systems and lower the tax rates so as to decrease the tax based distortions.

Distinction can be made between jurisdictions where they are able to finance their public utilities with nominal income taxes and offer themselves as places to set up business by non- residents to escape tax in home country, and on the other hand, countries which pocket sufficient revenue from taxes but whose tax standards resemble harmful tax competition.

In the first case, such jurisdictions will not agree to the idea of counteracting tax harmfulness but in the later case country may agree due to risk of harmful tax competition.

3.2 Tax Havens
Introduction
Tax Havens are those Jurisdictions or foreign sovereign where there is a lenient and much flexible administrative procedure regarding tax compliances in addition to no or a nominal rate of tax. Such Countries offer incentives to non- residents and are also not subject to exchange of Information due to incorporation of strict bank secrecy provisions.
A Tax Haven serves various purposes. Tax Havens base themselves upon current global financial infrastructure and have facilitated capital flow initially at inception. They had also improved the liquidity component of global financial market.

Purpose
Following purposes are served by a Tax Haven to non- residents and resident tax payers;
¼Holds passive investments
¼Provides a location where paper profits can be booked
¼Provides an effective shield from scrutiny by tax authorities

Whatever purpose a tax haven may serve it is ultimately causing destruction of tax systems of other tax jurisdictions. It leads to tax evasion and tax avoidance which cuts down on a country’s potential revenue.
At times countries acting as tax havens do not intend to show case their image as one so as to qualify the “Reputation Test[10].”

Identifying Tax Haven Jurisdictions
Necessary starting point to ascertain if a jurisdiction is tax haven or not can be seen by the rate of tax it imposes followed by the transparency in ad ministerial procedure, scope of exchange of information of tax payers and absence of requirement of activity to be substantial. All of it imply that a country is attempting to catch investments and such transactions are deemed to be tax driven.

No or Nominal Tax Rate
No or nominal (negligent) part of the gross income which is relevant for taxation is charged to be the tax, it is the initial step to ascertain about a jurisdiction to be tax driven and thus, tax haven.

Absence of effective information exchange
A little progress can be seen in this area. Several tax jurisdictions have entered into access to information agreements when the matter pertains to criminal or non tax regime. But the confidentiality as promised to non- resident so as to no cause harm to him if other tax authority demand access to his information is still maintained.

Non- Transparency
Procedural and administration secrecy helps an investor to avoid compliances and saves himself from scrutiny of other tax system as, tax havens maintain non- transparency in relation to tax payers information.

No substantial activities
Tax haven generally attracts investments which are tax driven. There is no other factor taken in to consideration in addition, there is no commercio- legal environment provided to the investor. Major investments can be seen through Paper Companies which book paper profits and no real investments can be seen.

Other factors
Several other factors other than tax factors; a relaxed and flexible regulatory framework and the existence of a solid corporate infrastructure, which contribute to the success of a tax haven.Benefit of a tax haven is majorly reaped by non residents from non tax haven jurisdiction, thereby enjoying the life of a Free Rider.

3.3 Harmful Preferential Tax Regime
Such a regime can be traced from the general tax code, or the administrative practices carried by that jurisdiction, or form of policy whether designed essentially as special tax or non- tax legislation.
Profits in harmful preferential tax regimes are majorly from passive investments than active. With assistance of such jurisdictions successful remobilisation of activities can be done for which demand or supply has dried up in host country’s domestic market.

Identifying Harmful Preferential Tax Regimes
Tax preferential regimes are set up in order to attract highly mobile and other financial services. These jurisdictions provide a platform to tax payers to hold passive investments and account for paper profits.

No or low effective tax rates
Findings as to whether a jurisdiction is carrying on harmful tax practice, particularly preferential regimes initiate from no or low tax rates. Since such a country keep its schedule rates low in designed policies, a zero or low effective tax rates can be seen. Thus, to identify a harmful preferential tax regime a combination of zero or low rates of tax is a starting point.

Ring fencing
Ring fencing[11]of regimes guarantee sponsoring country or non residents of that country a lower rate of tax over secured investments but on the other hand create adverse impact on the tax system and revenue of non- resident tax payer’s country i.e. foreign tax base.
Ring fencing has a dimension of causing harmful spill over effects. It may be seen in following forms.

Instances of Ring Fencing
a) A jurisdiction may by explicit or implicit manner oust resident tax payer from taking benefits of such regime.
b) Entities benefiting from such tax jurisdictions may be barred from operating and carrying out business in domestic markets.

Lack of transparency
Lack of transparency forbids home country to take precautionary measures. Non transparency can be ascertained by looking at the administration viability, favourable administrative rulings and fiscal environment is of a nature that domestic legislations of the concerned jurisdiction are not in tune with generally accepted global principles.

Lack of effective exchange of information
Disallowing exchange of information under the garb of secrecy laws, privacy and other factors; intending to benefit the non resident tax payers is also a factor to locate harmful preferential tax system.

Other factors
Non realistic definition of tax base thus adding unconditional provisions into tax policies, non adherence of international transfer pricing principles by which companies do not levy arm’s length price in intra- transactions, jurisdictions exempting foreign source income from taxation at the home country is also a threat, promotion of regime as a tax minimisation vehicle and at last all transactions, operations that take place are majorly tax driven.

Calculating Economic Effect of Preferential Tax Regime and the Potential Harm
Governments are in a dilemma whether to offer tax incentives or not so that they may not be classified under jurisdiction offering harmful tax practices. OECD report of 1998 terms it to be “Prisoner’s Dilemma” as they are compelled to offer incentives so as to be a part of competition, globally.

Following questions shall help in ascertaining the potential harm such regime can cause:
A. Whether the regime, shift activity from one country to other preferential tax regime and not generates sufficient new activity? Since investment can be sought by attracting savings as well as relocating core business. Thus, it is to check that if a substantial new activity is generated or is it a mere shift of savings so as to distort other tax jurisdictions.

B. Whether the existence and level of operations in the home country are in proportion to amount of investment? In case the level of activity in home country is disproportionate to income generated or investments made, it signifies existence of a harmful preferential tax regime.

C. Whether the jurisdiction is primary motivation for location of activity? If that’s the case such regime may cause harm and distort other tax systems. Though there are other factors too which help in deciding location of business like sound infrastructure, legislations, political environment, availability of raw materials etc.

4 Chapter: Tackling Harmful Tax Competition
Introduction
Government cannot sit back and look at other jurisdictions eroding their tax system and distorting their revenues from actual or potential income of residents. A combination of measures is being adopted unilaterally, by way of treaties and on a multilateral platform to counteract such harmful competition.
The OECD report majorly promotes the multilateral approach to be adopted as unilateral/ bilateral approaches suffer from various deficiencies like the following:
¼Limited scope of tax jurisdiction
¼Safeguard rights of its citizen thereby not taxing source income from preferential regime
¼Higher administrative costs
¼Uncoordinated unilateral steps increases compliance cost which is ultimately burdened upon the tax payers.

Looking at the above conclusion a co-ordinated action is required. Since, the jurisdictions have their sovereignty the report also provides bilateral (treaty) and unilateral measures to be incorporated in domestic tax laws but recommends multilateral measures.

OECD in its report has provided 19 Recommendations in order to counteract harmful tax practices. The recommendations are broadly divided under the following heads:
A. Recommendations for Domestic Law
B. Recommendations for Tax Treaties
C. Intensification of international cooperation

The above recommendations have following aim:
¼To encourage regimes to refrain from harmful tax practices
¼Offset benefit for tax payers of certain forms
¼Erode tax evasion and tax avoidance.

Tax competition subsists in various forms and its severity of harmfulness also differs. Looking at the level of harm it may cause, appropriate measures shall be chosen. For example; a jurisdiction promoting tax evasion and affecting other regimes by keeping secrecy of information is definitely a harmful tax jurisdiction. It can be contrasted with a country where tax rates are low but the administration is quite transparent so the potential harm is silent.

In the case of Tax havens the focus should be defence oriented aimed at prohibiting harmful effects, a multilateral coordinated approach to tackle tax competition may serve as a deterrent for potential regimes planning to create such a haven.

4.2 Recommendations (I): For Domestic Legislations And Operations
Recommendation concerning Controlled Foreign Corporations (CFC) or equivalent rules[12]
Under CFC rules a part of the total income is liable to be taxed currently in the hands of the resident shareholders. Such rules eliminate the benefit of deferral of domestic tax on major foreign source income of a CFC.
Countries not having rules with regard to CFC must incorporate it in their legislations and those which have such provisions need to reform them and match global standards. Such rules should be applied to all transactions whether arising from harmful regimes or not.

Recommendation concerning foreign investment fund (FIF) or equivalent rules[13]
Some countries develop FIF to supplement CFC whereas in other countries it is a much broader concept and the intention is to eliminate the benefit of deferral for ideally all passive investments in foreign corporate or entities.

CFC policies which subject the Foreign Corporate’s income to current tax apply only to foreign corporations controlled by resident shareholders that own a significant interest in it. Thus, residents may defer home (domestic) tax by investing in shares of foreign mutual funds. If such funds are widely owned, certainly will not be controlled by limited number of resident shareholders; nor will any one resident shareholder own a significant portion in fund raised.

Thus, owners of foreign mutual funds won’t be subject to the anti-abuse policies afforded by resident countries’ CFC legislations. To ignore such situation, countries have adopted foreign investment fund (FIF) or equivalent rules.

Recommendation concerning restrictions on participation exemption and other systems of exempting foreign income in the context of harmful tax competition[14]
Countries which exempt foreign source income under any of the double taxation situations must keep a check over the entity and the source country if it is a harmful tax regime; in case the source country is a harmful tax jurisdiction such exemption shall cease to exist for the tax payer.

Countries must design possible minimum restrictions taking into account factors like:
¼Jurisdiction from which foreign income originates
¼Type of income; classification
¼The rate of tax to which the income has been subjected to in the foreign country.

Recommendation concerning foreign information reporting rules[15]
Recommendation that countries should make a room in their policies and system where information relating to an entity regarding various significant transactions, property held, etc can be accessed by the home country for better scrutiny and ascertaining of tax liability.
The same has been objected to by various nations calling it a breach of citizen’s privacy rights or contradicting local laws which has been critically analysed in the conclusion and suggestions.

Recommendation concerning rulings[16]
Absence of details relating to administrative practices which provide tax payer’s status, in particular on matters such as the ALP of certain services or the allocation of profits or losses between associated enterprises, makes a tax system non-transparent. Publication, in a way that protects taxpayer confidentiality, of the substantive and procedural conditions for granting or denying individual tax rulings and ensures a greater transparency of countries tax policies and is essential to the application of measures to prevent harmful tax competition.

Recommendation concerning transfer pricing rules[17]
A country may deviate for adhering to transfer pricing rules and may provide benefit of arm’s length price to players and investors, thus making its jurisdiction tax favoured. Such action certainly constitutes harmful tax competition. Recommendation prescribes strict adherence to 1995 guidelines[18]to tackle mismatches and follow arm’s length pricing.

Recommendation concerning access to banking information for tax purposes[19]
Lack of bank information of a tax payer, at times, pose serious impediment for assessing country to sculpt out fairness of accounts presented before it. Access to such information can lead to removal of distortion and disruption caused by harmful tax regimes. This would not only protect tax bases and systems but would also supplement Recommendation no. 4.2.3[20]

4.3 Recommendations (II): For Tax Treaties
The initial 4 recommendations (4.3.1-4.3.4) are inter-related and must be read together to draw intended meaning.

Recommendation concerning greater and more efficient use of exchanges of information[21]
Information pertaining to foreign transactions and tax payers is at times vital to fight effect of harmful tax practices, but the same is very difficult to obtain. Treaties should promote provisions for exchange of information as such disclosure shall help in refraining from tax harmful regimes.

Recommendation concerning the entitlement to treaty benefits[22]
Regimes offering preferential tax treatment view development of their network as an asset and draw out from third country by distorting their tax base.

Various methodologies have been adopted by countries to reduce the above risk. In some cases, countries have been able to determine that the place of effective management of a subsidiary lies in the State of the parent company so as to make it a resident of that country either for domestic law or treaty purposes. In other cases, it has been possible to argue, on the basis of the facts and circumstances of the cases, that a subsidiary was managed by the parent company in such a way that the subsidiary had a permanent establishment in the country of residence of the parent company so as to be able to attribute profits of the subsidiary to that latter country. Another example involves denying companies with no real economic function treaty benefits because these companies are not considered as beneficial owner of certain income formally attributed to them.

Recommendation concerning the clarification of the status of domestic anti-abuse rules and doctrines in tax treaties[23]
Domestic taxation laws include various anti- abuse rules and doctrines which are used to tackle harmful tax practices. Tax treaties generally incorporate a few specific anti- abuse policies so a dispute arises to validity of doctrines existing in domestic taxation. Thus, whether a benefit forbidden to a domestic taxpayer can be availed by a citizen having foreign source income is a matter of concern.

The Model Tax Convention does not throw light on various anti-abuse provisions existing at domestic level. Thus, it would be appropriate to provide that tax treaties to incorporate application of such rules in their draft.
The Recommendation is to the effect to remove any ambiguity regarding the competence of domestic anti-abuse measures with the Model Tax Convention.

Recommendation concerning a list of specific exclusion provisions found in treaties[24]
Various treaties expressly provide for exclusion of certain types of incomes and deny certain entities the tax benefits otherwise available. Such list of exclusion differs among countries. Countries shall adopt a standard list of such exclusion so as to keep the principle of fairness and equality intact.

Recommendation concerning tax treaties with tax havens[25]
This recommendation is to the effect that countries having treaty signed with tax havens or jurisdiction posing a threat to tax competition, be terminated. This may cause political disturbances, but ultimately the effect will be credibility once other jurisdiction decides to sign out from the treaty. Factors laid down in previous chapter which illustrates how to reach to the conclusion whether a jurisdiction is Tax Haven or not.

Recommendation concerning co-ordinated enforcement regimes[26]
Several countries have developed joint audit programs which entails both the foreign source country as well as the domestic country to audit the business and financial performance of the tax payer so as to curb tax evasion and avoidance.

This form of co-operation should be intensified since such audit programmes can help achieve required objective. Similarly, relevant co-operation between taxing bodies are also likely to be effective in improving international tax adherence.

For example, the international particulars of a country’s tax system are generally the most technical and complex aspects. It is always not possible for tax authorities to ensure that their cross- border audit staffs possesses the requisite skills to deal with the issues adequately. Joint training activities on basic topics like; treaty issues, audit strategies, sophisticated transactions, transfer pricing, the design and implementation of CFC and FIF rules etc. could improve administration by disseminating successful audit practices and by promoting closer contacts between tax inspectors dealing with international transactions.
The Recommendation is aimed at further developing collaboration in that respect.

Recommendation concerning assistance in recovery of tax claims[27]
The need for enforcement of tax claims of other countries should be realised to the earliest so as to prevent tax evasion. Extra territorial tax claims, lack of reciprocal promises and procedural fairness are a few factors which lead to failure in recovery of tax claims. Thus, countries should encourage enforcement of cross- border tax claim and reform the existing tax system.

4.4 intensifying International Cooperation To Counteract Harmful Tax Competition
Recommendation for Guidelines and a Forum on Harmful Tax Practices[28]
Under this recommendation various guidelines are provided looking at the present scenario tu curb the harmful effect of Tax Competition and establishment of a forum to address the issues that distort taxation patter and vitiates any domestic tax system. Following are the guidelines:
a. Countries should refrain to adopt any measure relating to taxation, or expansion of scope, strengthening of extant measures that constitute harmful tax practice.
b. Countries are advised to review their current tax laws and administrative procedures and find out if any harmful tax practice prevails. Same is to be reported to the OECD forum within 2 years from date of approval of the report.
c. All such harmful tax practices which are figured out or which are provided in previous chapter are to be removed from the respective policies, legislations and stand null/ void post expiry of 5 years from the date of approval of the OECD report.
d. Any member country of OECD, if finds, their tax system lack any of the measure to tackle harmful tax practices or wish to recommend a new measure shall incorporate such measures and recommend potential measures to the forum.
e. Countries to co-ordinate through forum on the responses and ways to counteract harmful tax practices.
f. The forum should also encourage non- members countries to adopt such measures.

Recommendation to produce a list of tax havens[29]
The forum, within one year from its inception shall prepare a list of tax havens and other harmful tax regimes by examining the jurisdictions and exploring by all necessary means. Same shall facilitate among the member countries to again revise and reform their policies if found to be deficient.

Recommendation concerning links with tax havens[30]
Countries having particular political, economic or other links with tax haven jurisdiction ensure that these links do not contribute to harmful tax competition. Also, it is to be seen that countries that have dependencies that are tax havens ensure that the links that they have with these tax havens are not used in a way that increase or promote harmful tax competition.

Such relation or ties should not be used to assist the relevant countries or dependencies in engaging in harmful tax competition. It is further recommended that countries that have said relations should consider reformation and side away harmful tax competition resulting from the existence of these tax havens.

Recommendation to develop and actively promote Principles of Good Tax Administration[31]
Major recommendation depends upon this recommendation. As per the report good administration principles[32]gelled with transparency and coupled with other principles of governance can only promote the purpose set out in Paris convention and objective of OECD can be obtained.

Recommendation on associating non-member countries with the Recommendation[33]
Forum to be vested with the responsibility to have dialogue with non- member countries so as to curb the displacements of activities and restrain them from such harmful tax practices as are prevalent. Such recommendation is to the effect that a tax base can only be safeguarded if the action to prevent the tax bases from being distorted a multilateral approach is a must.

Other Counteractions
Restriction of deduction of payment to tax haven jurisdictions, imposing of withholding taxes on certain payments to residents of countries engaged in harmful tax practice, residence rule[34], application of transfer pricing rules and guidelines, thin capitalisation and financial innovation and several other non- tax measures.

5 Chapter: Critical Analysis And Conclusion
The major loopholes and certain unconditional provisions incorporated by the 1998 OECD report have been drawn out under this chapter. The following chapter is divided into 2 parts. The first part magnifies the critical appraisal followed by conclusion which incorporates country’s perspective towards the OECD report.

Critical Appraisal
Information Sharing -A Threat
Countries fear exchange of information[35]or access to their citizen’s information when given to other authorities lying outside their jurisdiction. To counteract such fear, countries legislate on secrecy and confidentiality thereby providing guarantee to their citizen (banks to their Clients) of non- disclosure. Such an action can only by way of court of law or subject to any other law for the time being in force.

Right to Privacy [36]
Right to privacy has been taken as fundamental right by various nations; a few Nation consider it to be a constitutional right. Broadly it’s a legal right vested in a person so as to guarantee right to life. Looking at the factors to identify harmful tax regimes OECD went down to recommending various measures which are a breach of right to privacy if contrasted with domestic legislation. Recommendation 4.3.1 and 4.2.7 specifically, are in a breach of right to privacy and secrecy laws. Such nation may not be a harmful tax regime but non- disclosure of information shall raise a doubt against that regime.

Prevalent Mode to Attract Investment [37]– Prisoners Dilemma
Majorly, tax incentives play as a magnet for most of the countries to attract foreign business for various purposes like developing infrastructure, widen scope of employment etc. Thus, tax driven investments cannot be forbidden by a blanket resolution.

Economic Inequality [38] between Developed And Other Economies
Self sufficient economies willing to erode tax competition may not suffer from lack of development or shortage of liquid money or investments. For the same reason they may agree on recommendations provided by OECD Report of 1998 but in case of under developed economy or developing economy it may pose a problem as fund generation and their development, to a major extent is limited to foreign investments attracted currently by way of tax incentives.

Competition- A Positive Way to Tackle
The only determinant and regulation which is self regulatory is a healthy competition[39]. Competition, if seen in a long run tends to bring down distorting effect and keeps the rate of taxes, finance, and employment low (or controlled) due to presence of players and avenues worldwide.
Competition itself being a measure to curb harmful practices in no way should be hindered by creation of treaties or taking a multilateral approach as recommended by the Report.

Limited Scope – Tax Jurisdiction
Even if a country adopts the recommendations, its jurisdiction shall remain limited. Transparency or extension of jurisdiction cannot survive for long, going through the international disputes, which has been proven.

Non Tax Factors Not Taken Into Account
The OECD report takes into account only the tax factors and do not find a place for non- tax factors which spoils the sanctity of the recommendations provided.
Wage rates, tax rates, labour skills, transport and infrastructure, Size of economy / potential for growth, Political stability / property rights, commodities, exchange rates, clustering effects, access to free trade area are a few non- tax factors which may attract investment into a low rate tax regime which would not imply existence of a harmful tax regime.[40]

Conclusion
Project carried out by OECD to harmful tax practices do not take into account the plight of developing and under developed countries. Looking at the vagueness and unconditional approaches adopted by OECD for its member countries no guarantee to curb the harmful tax practice and a global welfare, can be drawn.

The OECD report caters mainly the interest of its member countries and is not inclined towards uprooting global inequalities.[41] It also fails to create a balance between development and competition. The ideology behind these recommendations shows that the member countries tend to form an illusionary cartel which shall govern the global regime by a single tax rate.[42]Such tax rate may rise to exorbitant level due to absence of competition in the market.

The factors provided by the OECD to ascertain tax havens and harmful preferential tax regimes are not practical enough to eradicate the problem of tax avoidance or tax evasion. All the factors are designed in a way so as to keep welfare of member countries intact and at foremost priority.

Globally, a more competent mechanism is required to tackle the problems of double taxation, tax avoidance and tax evasion. The recommendations set out in the report in no case create a harmony between development and curbing harmful tax practices. Methods like residence rule, where any income generated to be taxed in the home country, though failed but was a better way to tackle if compared to the multilateral approach of the OECD.

Bibliography
Books
1.Angharad Miller and Lynne Oats, Principles of International Taxation, Tottel Publishing, 2006 (E-Book)
2.Andrea Amatucci, International Tax Law, Kluwer Law International
3.Tax Planning with Holding Companies, Repatriation of US profits from Europe, Kluwer Law International, Rolf Eicke
4.Black’s Law Dictionary, 8thEd., Bryan A. Garner
5.International Law in Relation to Double Taxation of Income, Lexis Nexis, Butterworths, IP Gupta

OECD Documents
1.OECD 1998 Report - Harmful tax competition; An emerging global issue
Available at: www.oecd.org/dataoecd/33/1/1904184.pdf
2.OECD 2000 Report
Available at: www.oecd.org/dataoecd/9/61/2090192.pdf
3.OECD 2001 Report
Available at: www.oecd.org/dataoecd/60/28/2664438.pdf
4.OECD 2004 Report
Available at: www.oecd.org/dataoecd/60/33/30901115.pdf
5.Business and Industrial Advisory Committee to OECD, A Business View On Tax Competition, June 1999
Available at: www.biac.org/statements/tax/htc.pdfBIAC
6.OECD Revenue Statistics-Comparative tables
Available at: www.stats.oecd.org/wbos/Default.aspx?usercontext=sourceoecd

Journals And Articles
1.Alexander Townsend Jr., The Global Schoolyard Bully: The Organisation Of Economic Development’s coercive efforts to control tax competition, 25 Fordham Int’l L.J 215 (2001-2002)
2.Michael Littlewood, Tax competition: Harmful to whom?, 26 Mich. J. Int’l L. 411 (2004-2005)
3.Mitchel B. Weiss, International Tax Competition; An efficient or inefficient phenomenon, 16 Akron J. 99 (2001)
4.Javier G. Salinas, The OECD tax competition initiative: A critique of its merits in the global market place, 25 Hous. J. Int’l L. 531 (2002-2003)
5.Kimberley Carlson, When Cows have wings: An analysis of OECD’s tax haven work as it relates to Globalization, Sovereignty and Privacy, 35 J. Marshall L. Rev. 163 (2001-2002)
6.Julie Roin, Competition and evasion: Another perspective on International tax competition, 89 Geo L.J 543 (2000-2001)
7.Yoram Margolith, Tax competition, foreign direct investment and growth: Using tax system in promoting developing countries, 23 Va. Tax Rev. 161 (2003-2004)
8.Almeida, Tax Havens: An Analysis of the OECD work with policy recommendations, available at: www.receita.fazenda.gov.br/Publico/estudotributarios/TrabAcademicos/Textos/AloisioTaxHavens.pdf
9.Chris Edwards and Veronique de Rugy, Chapter 3, Economic Freedom Of World: 2002 Annual Report available at

For further reference and to seek clarity on recommendation provided under the Report I have referred following documents:
Relevant Oecd Reports And Guidelines
Publications Related To National Tax Law
§Controlled Foreign Company Legislation: Studies in Taxation of Foreign Source Income (1996)
§Combating Bribery of Foreign Public Officials in International Transactions: The Role of Taxation (1996)
Publications Related To Tax Treaties
§OECD Model Tax Convention (issued in loose-leaf format in 1992, updated in 1994, 1995 and 1997)
§The Tax Treatment of Employees’ Contributions to Foreign Pension Schemes (1992)
§Triangular Cases (1992)
§The Tax Treatment of Software (1992)
§The 183 Day Rule: Some Problems of Application and Interpretation (1991)
§The Taxation of Income Derived from Entertainment, Artistic and Sporting Activities (1987)
§International Tax Avoidance and Evasion: Four Related Studies (1987)
§Thin Capitalization (1986)
§The Taxation of Income from the Leasing of Containers (1983)
§The Taxation of Income Derived from the Leasing of Industrial, Commercial or Scientific Equipment (1983)
Publications Related To Transfer Pricing
§Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (1995)
§Attribution of Income to Permanent Establishments (1993)
§Transfer Pricing, Corresponding Adjustments and the Mutual Agreement Procedure (1982)
Publications Related To The Exchange Of Information
§The Use of Tax Payer Identification Numbers in an International Context (1997)
§OECD Manual on the Implementation of Exchange of Information Provisions For Tax Purposes (1994)
§Tax Information Exchange Between OECD Member Countries: A Survey of Current Practices (1994)
§The OECD Model Agreement for Simultaneous Exchanges of Tax Information (1992)
§The Revised Standard Magnetic Format (1992)
§OECD Standardised Form and Magnetic Standard for Automatic Exchange of Information (1992)
§Taxpayers Rights and Obligations: A Survey of the Legal Situation in OECD Member Countries (1990)
§The Joint Council of Europe OECD Convention on Mutual Assistance in Tax Matters (1988)
§Model Convention for Administrative Assistance in the Recovery of Tax Claims (1981).

End-Notes
[1] Available at :http://www.uniset.ca/microstates/oecd_44430243.pdf; Downloaded on August 19th, 2017 at 12:03 PM
[2] Available at:http://aei.pitt.edu/3494/1/3494.pdf; Downloaded on August 21st, 2017 at 01:23 PM
[3] A jurisdiction especially a country that imposes little or no tax on the profits from transactions carried on there or on persons resident there; Black’s Law Dictionary, 8thEd., Bryan A. Garner
[4] Tax base is defined as the income or asset balance used to calculate a tax liability, and the tax liability formula is tax base multiplied by tax rate. The rate of tax imposed varies depending on the type of tax and the tax base total. Income tax, gift tax and estate tax are each calculated using a different tax rate schedule.
Online Source: http://www.investopedia.com/terms/t/taxbase.asp#ixzz4xiN94ifl ; visited on 1August 19th, 2017 at 12:49 PM
[5] Extracted from:https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/2010/04/14/tax-history-law-personal-finance-tax-law changes.html&refURL=https://www.google.co.in/&referrer=https://www.google.co.in/; visited on August 24th, 2017
[6] The one who obtains an economic benefit at another’s expense without contributing to it; Black’s Law Dictionary, 8thEd., Bryan A. Garner
[7] Money invested in tangible and productive assets such as plant and machinery, as opposed to investment in securities or other financial instruments; Black’s Law Dictionary, 8thEd., Bryan A. Garner
[8]In the case of source based taxation principle, importance is to the source (country) where income is generated. There are individuals/entities whose "residence" is in one country but their business is actually carried on in another country and their income is earned in the latter country. In such cases, the principle of residence-based taxation would be inappropriate. Therefore, there is a view that the country which provides the opportunity and facilities to generate income or profits (COS) should also have the right to tax the same; Source:http://www.indianeconomy.net/splclassroom/142/what-is-the-difference-between-residence-based-taxation-and-source-based-taxation/; Visited on October 24th, 2017
[9] Generally, the financial centers referred to as tax havens include: Cayman, The Bahamas, Luxembourg, Switzerland, British Virgin Islands, Bermuda, Monaco, Mauritius, Cyprus, Anguilla, Aruba, Belize, Cook Islands, Malta, San Marino, Grenada, Gibraltar, Jersey, Nauru, Panama, Turks and Caicos, Antigua, Dominica, Guernsey, Isle of Mann, Liechtenstein, Netherlands Antilles, St. Kitts and Nevis, Seychelles; Source: David vs. Goliath (2001): An Analysis of the OECD Harmful Tax Competition Policy, Truman Butler
[10] Meaning: The imposition of no or only nominal taxes and self- promotion or appearance of self- promotion as a place to be used by Non- residents to escape tax in their country of residence; Tax Planning with Holding Companies, Repatriation of US profits from Europe, Kluwer Law International, Rolf Eicke, Pg.111, Para 2
[11] Ring fence is to remove a set of assets from a set of accounts and consider it separately. This could be done for a company or for an individual. Certain assets could perhaps be moved offshore which would lower that company's or person's tax liability; Financial Times, Source:http://lexicon.ft.com/Term?term=ring-fence; Visited on September23rd at 01:12 AM
[12] Recommendation 1 of The OECD Report, 1998, Para 97-100
[13] Recommendation 2 of The OECD Report, 1998, Para 101-103
[14] Recommendation 3 of The OECD Report, 1998, Para 104,105
[15] Recommendation 4 of The OECD Report, 1998, Para 106,107
[16] Recommendation 5 of The OECD Report, 1998, Para 108-110
[17] Recommendation 6 of The OECD Report, 1998, Para 111
[18] Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (1995)
[19] Recommendation 7 of The OECD Report, 1998, Para 112, 113
[20] See in particular The OECD Report on Harmful Tax Competition an Emerging Global Issue Paragraph 64 page 29…” The ability or willingness of a country to provide information to other countries is a key factor in deciding upon whether the effect of a regime operated by that country has the potential to cause harmful effects.”
[21] Recommendation 8 of The OECD Report, 1998, Para 114-117
[22] Recommendation 9 of The OECD Report, 1998, Para 118-120
[23] Recommendation 10 of The OECD Report, 1998, Para 121- 125
[24] Recommendation 11 of The OECD Report, 1998, Para 126- 128
[25] Recommendation 12 of The OECD Report, 1998, Para 129-132
[26] Recommendation 13 of The OECD Report, 1998, Para 133- 135
[27] Recommendation 14 of The OECD Report, 1998, Para 136- 139
[28] Recommendation 15 of The OECD Report, 1998, Para 140- 148; for further detail on this recommendation to refer box III of the report
[29] Recommendation 16 of The OECD Report, 1998, Para 149-151
[30] Recommendation 17 of The OECD Report, 1998, Para 152, 153
[31] Recommendation 18 of The OECD Report, 1998
[32] Equity and Fairness, Certainty, Convenience of Payment, Effective Tax Administration, Information Security, Simplicity, Neutrality, Economic Growth and Efficiency, Transparency and Visibility, Minimum Tax Gap, Accountability to Taxpayers, Appropriate Government Revenues are a few good tax administration principles.
Guiding Principles of Good Tax Policy: A Framework for Evaluating Tax Proposals; Source:https://www.aicpa.org/ADVOCACY/TAX/downloadabledocuments/tax-policy-concept-statement-no-1-global.pdf; Visited on October 23rd, 2017 at 10:23 PM
[33] Recommendation 19 of The OECD Report, 1998
[34] Online Source:https://www.lawctopus.com/academike/resident-rule-india/; Visited on September 23rdat 04:24 PM
[35] Cyber Threat Information Sharing, centre for strategic and International Studies; Source:https://www.csis.org/programs/technology-policy-program/cybersecurity-and-warfare/other-projects-cybersecurity/cyber-1; visited on September 4th, 2017
[36] Right to Privacy has been granted as a fundamental right in various jurisdictions including India; Justice K.S. Puttaswamy and Ors. vs. Union of India (UOI) and Ors. (24.08.2017 - SC) : MANU/SC/1044/2017
[37] Incentives for attracting foreign direct investment: An overview of OECD work; Online Source:http://www.oecd.org/daf/inv/investmentstatisticsandanalysis/incentivesforattractingforeigndirectinvestmentanoverviewofoecdwork.htm; Visited on September 23rdat 05:34 PM
[38] Economic inequality is the unequal distribution of income and opportunity between different groups in society. It is a concern in almost all countries around the world and often people are trapped in poverty with little chance to climb up the social ladder. But, being born into poverty does not automatically mean you stay poor. Education, at all levels, enhancing skills, and training policies can be used alongside social assistance programs to help people out of poverty and to reduce inequality.; sourcehttps://wol.iza.org/key-topics/economic-inequalityvisited on September 1st, 2017 at 12:33 PM
[39] Competition is about increasing choice and efficiency to benefit consumers and make the economy more productive. This also applies to sectors which in many countries have been liberalised (such as electricity, water, railways and telecoms), which are subject to regulation (banking and other financial services) or where the government plays an important role (healthcare, education and local public services); Source:http://www.oecd.org/competition/sectors/Visited on November 1st, 2017 at 12:39 PM
[40] Factors that affect foreign direct investment (FDI), Tejvan Pettingar; source:https://www.economicshelp.org/blog/15736/economics/factors-that-affect-foreign-direct-investment-fdi/Visited on October 28th, 2017 at 03: 21 PM
[41] Also supported by OECD Project on Harmful Tax Competition Written by Samir Malik, University of Warwick; Source:http://www.legalserviceindia.com/article/l264-OECD-Project-on-Harmful-Tax-Competition.html; Visited on October 12th, 2017 at 01:12 PM
[42] bid