OECD Likely to Push Back Tax Haven Sanctions Deadline

By Michael Bleby

London, June 12 (Bloomberg) -- Tax officials from industrialized countries will likely hold off from imposing sanctions on offshore tax havens from as early as next month, to secure U.S. support for their plan, analysts said.

Tax havens failing to sign up by July 31 to a list of conditions set by the Organization for Economic Cooperation and Development faced sanctions. At meetings in Paris today and tomorrow, the OECD is likely to drop that demand, after U.S. Treasury Secretary Paul O'Neill said last month he had ``serious reservations'' about the plan.

Analysts say the OECD, backed by many European member countries, is determined to push ahead with the initiative. It could keep momentum going by calling, by July 31, for tax havens to make general commitments to aspects the U.S. favors, such as more transparency and exchange of information. It is likely, though, to remove the threat associated with the July 31 deadline.

``A period of delay might be helpful,'' said Bob Harland, a tax partner at PricewaterhouseCoopers. ``That may well avoid too much aggression all round. A reasonable course of action would be to invite a commitment by July 31 to an exchange of information and transparency. That will allow wider consultation.''

Tax officials from OECD countries may agree to push back the date from which members can impose sanctions on offshore tax havens to 2003. Imposition of sanctions could also apply to OECD members themselves carrying out ``harmful'' practices by that date.

Double Standards

This would address claims by offshore tax havens that the OECD countries were attempting to impose different standards on them from what industrial countries set for themselves. The OECD's response could also answer questions the offshore tax havens asked in February, but say they still haven't received answers on.

``Small and developing economies need the clarifications promised,'' said Lynette Eastmond, Director of the International Tax and Investment Organization, a lobby group representing offshore financial centers. ``We also need a clear understanding of where the OECD is going.'' Tax havens include many developing countries belonging to the Commonwealth.

O'Neill's statement threw a lifeline to the 32 countries out of the original 35 named on an OECD list last June that haven't yet agreed to changes in their so-called ``harmful tax practices,'' and set back the OECD's ambitions by up to 10 years. U.S. officials said at the time they wouldn't necessarily support the July 31 deadline.

``I don't think you should assume that's a fixed deadline,'' said Glenn Hubbard, chairman of the White House Council of Economic Advisers, at a meeting of OECD finance ministers in Paris last month.

Struggle

This week's meeting of tax officials will be followed by a meeting of the OECD's Committee on Fiscal Affairs, which oversees the harmful tax practices initiative, on June 26 and 27.

OECD members have been struggling to achieve a united stance in their attempt to regain tax revenue after President George W. Bush's administration showed less enthusiasm than that of former President Bill Clinton. O'Neill's statement last month came after lobbying by low-tax advocates such as the Center for Freedom and Prosperity, an Alexandria, Virginia-based group.

The U.S. is now coming under pressure to cooperate with the OECD proposal. In a letter addressed to O'Neill dated June 7, seven former Internal Revenue Commissioners, including Donald C. Alexander and Margaret M. Richardson, said the U.S. would do better at cutting down on tax evasion by working with the other 29 OECD countries rather than by acting alone.

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