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Bloomberg News

May 10, 2001

US Retreating From OECD Crackdown on Tax Havens

       Washington, May 10 (Bloomberg) -- The U.S. is reversing the Clinton administration's support for a crackdown on global tax havens led by the Organization for Economic Cooperation and Development, Treasury Secretary Paul O'Neill said.

     ``In its current form, the project is too broad and is not in line with this  administration's tax and economic priorities,'' O'Neill said in an article published in the Washington Times. The Treasury issued a statement that the article was written by O'Neill after the paper listed the author as Rob Nichols, the deputy assistant secretary for public affairs. 

     O'Neill's statement counters the position of former President Bill Clinton, who supported the OECD's effort to impose economic sanctions on about three  dozen countries suspected of enabling wealthy citizens to evade taxes in their home countries.

     ``The United States does not support efforts to dictate to any country what its own tax rates or tax system should be, and will not participate in any initiative to harmonize world tax systems,'' O'Neill said. Instead, he called  for building a ``framework'' to share ``specific and limited information necessary for the prosecution of illegal activity.''

     OECD, EU React 

     Nick Bray, head of media relations at the OECD, said members of the organization's tax policy forum, meeting today in Paris, would not comment  immediately. He wasn't aware the article was by O'Neill instead of a deputy. 

     The article was wrong in suggesting the OECD's initiative targeted tax rates, Bray said. 

     ``The OECD's project has nothing against low tax rates as such,'' he said.  ``This is a misrepresentation.''

     Frits Bolkestein, the European Union's commissioner for internal markets and  taxation, said the assertion that the OECD was concerned about rates of  taxation was ``nonsense.'' 

     ``Any noises that the European Union or the OECD wants to increase tax levels is sheer nonsense,'' he said in an interview. ``The OECD is not concerned with tax levels, it merely wants to aid the movement to a worldwide system  where people pay the tax due on their savings: Nothing more and nothing less.'' 

     Strange Bedfellows 

     The Bush administration has been under mounting pressure from lawmakers representing a range of ideologies from anti-tax Republicans such as House Majority Leader Dick Armey of Texas to members of the Congressional Black Caucus such as House Ways and Means Committee senior Democrat Charles Rangel  of New York. 

     The Black Caucus fears economic sanctions will hurt several Caribbean countries on a June 2000 blacklist of 35 countries whose tax systems met the ``technical criteria for being tax havens.'' They include Aruba, the Bahamas, Barbados, Belize, Grenada, Montserrat as well as the U.S. Virgin Islands.

     The pressure largely has been coordinated by groups such as the Heritage  Foundation, a research institution, and the Center for Freedom and Prosperity, a lobbying group, to reverse Clinton's support for the crackdown. 

     Andrew Quinlan, the center's director, claimed victory today. ``Everything we has asked for he has come out and said,'' Quinlan said. Quinlan characterized  O'Neill's language as ``diplomatic'' and said ``I hope that was put in there to give the news to them softly.''

     `Pleased' With Statement 

     Representatives of some tax haven countries meeting in Kent, England, also  welcomed the U.S. statement.

     ``We're pleased,'' said Lynette Eastmond, of the International Tax and  Investment Organisation, a group set up in March this year to represent small nations on tax and investment issues. ``The position we see articulated is  essentially one that we've been saying all along.'' 

     Eastmond welcomed U.S. comments that there was a need for fair treatment of all countries. Offshore tax centers say the OECD demands greater concessions from then than from the OECD's own members. 

     ``They are concerned with due process, a level playing field and an end to  double standards,'' she said.

     Eastmond, who is also director of international business in the Barbados  government, didn't comment on whether the OECD's initiative was an attempt to  harmonize tax levels or not.

     ``We came to this very late,'' she said. ``We don't know what their thinking  is.''

     Bolkestein said it would be a ``bad day for the United States, also for other jurisdictions and government, but mostly for the United States'' for the U.S.  to pull out of the effort.

     The OECD effort will continue, however, even if the U.S. does withdraw, he  said.

     ``We're not going to sit with our hands crossed and do nothing about these  fortunes being stashed away in countries where nobody can look at them,'' he said. 


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