The Group of Twenty (G-20) has spoken and Jamaica is obliged to listen.

The heads of government from the 19 member countries and the European Union, representing industrial and emerging-markets from all regions of the world, met in London last week to lay the groundwork for a new international economic order.

Jamaica will shortly be hosting its own international financial services centre (IFSC) and the G-20 had much to say on offshore markets or "tax havens" as they pejoratively prefer to call them.

After much posturing - generating more heat than light - the final G-20 communiqué included a clampdown on tax havens that refuse to sign anti-secrecy agreements.

Such noncompliance, the communiqué asserted, would result in international sanctions.

TAX INFORMATION EXCHANGE

The Tax Information Exchange Agreements (TIEAs), on which this crackdown rests, have in fact been around for some time, first proposed by the Organisation for Economic Cooperation and Development (OECD).

TIEA are principally bilateral in nature, that is, each such agreement is between two countries. On March 10, 2009, for example, Jersey signed a TIEA with the United Kingdom, albeit that the wording - as is invariably the case - was based on the OECD TIEA model.

How effective are these agreements? Not very. An example will suffice.

The TIEA between Jersey and the US has seen Jersey provide information on only four occasions in four years.

This is because under TIEAs only specific information - targeted and justified - about named individuals or companies, who are themselves the subject of an ongoing investigation, may be requested.

British Prime Minister Gordon Brown declared in last week's issue of Time Magazine that such agreements represent "the beginning of the end of tax havens." This, one suspects, is seriously wide of the mark.

Does anyone really believe that the ministers and bankers of Switzerland - for they are one - would agree, as they have, to relax their financial secrecy laws if by such an act they were hastening their own demise.

WHY THE FUSS?

The industrialised nations have the legal infrastructure and strength of government agencies to ensure that the taxes levied within their jurisdiction enjoy a high degree of compliance.

Transferring assets abroad - be they to tax havens or anywhere else - for the sole purpose of eliminating or minimising income tax has long been the subject of anti-tax avoidance legislation in the UK. Indeed, the first such legislative enactment was in 1936.

America has been equally focused. As early as 1935 the US judiciary in Gregory v Helvering established the doctrine under which transactions with a tax-saving purpose, but no business purpose may be disregarded by the IRS.

It was this test that professional boxer Ingemar Johansson failed to pass when using a newly formed and personally owned Swiss corporation to sign on his behalf contracts for the World Heavyweight Boxing Championship match with Floyd Patterson in the 1960s.

On the other hand, a decade later Sir David Frost, the well-known television interviewer, successfully used a limited partnership with a Bahamian corporation to shelter his international income from UK taxation.

The G-20's problem with IFSCs is not their legitimate use in international financial planning, but their 'illegitimate' use. It is not about tax avoidance but tax evasion. It is not about lawful asset protection but hiding money from the taxing authorities. In short, it's about banking secrecy.

And it is this - at last! - rather than the nonsense about unfair tax competition, for so long the bugbear of the OECD, that the world's leading economies have decided to concentrate on.

JAMAICA FIRST

We have nothing to fear from the G-20 pronouncements. We should welcome them. Jamaica has the opportunity to become the first offshore financial centre of the new international economic order.

There is nothing in the G-20 communiqué against using a preferential tax regime to attract international capital and investment. The new economic order will reward efficiency, regulation and transparency.

Jamaica is a physically beautiful country. It must become an attractive country in which to do business and in which to relax when the business is done, whether that business is financial services, corporate headquartering, information technology or sport and entertainment.

Bruce Golding said in his prime ministerial address to the nation on 5 April 2009. "The time has come when we must do what we have long needed to do to make our tax system just and equitable and one that helps to stimulate rather than stifle investment, production and job creation."

And a constituent part of that process, Mr Prime Minister, is the creation of the Jamaica IFSC.

Dr Trevor Thomas is an international tax consultant and author of 'Offshore Jamaica: The Path Ahead'.