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Bureau of National Affairs

No. 17
Thursday January 25, 2001
Page G-9
ISSN 1523-567X
Tax, Budget & Accounting

International Taxes
CFP Activists in London to Counter
OECD's Harmful Tax Competition Effort

     LONDON--The Organization for Economic Cooperation and Development's effort to eliminate harmful tax competition amounts to a form a financial protectionism, antitax activists from the Center for Freedom and Prosperity, a nonprofit group that came to London to oppose the OECD's crackdown, said Jan. 24.

     "The problem isn't a tax haven problem," said CFP President Andrew Quinlan. "The problem isn't that tax havens have low taxes. Maybe the problem is that OECD countries have high taxes." 

     Quinlan said he and Dan Mitchell, CFP board chairman and senior fellow at the Heritage Foundation, were asked to leave a Jan. 8-9 Barbardos conference between OECD officials and representatives of tax haven target countries but came to London to make certain that the target countries are as well represented as OECD "because there should be an equal number of experts who believe in tax competition." 

     The CFP sees the OECD effort to stamp out harmful tax competition is an assault on privacy and sovereignty. "The OECD," said Mitchell, "wants to bully these little low-tax countries into signing up to the global information exchange regime--either that or raise their tax rates to 50 percent so no one wants to invest there anymore" (see related report this section ).

     The CFP was formed last October to protect tax competition, financial privacy, and fiscal sovereignty, but its chief aim has been to roll back efforts by the OECD to force changes in laws in nations with low-tax policies. Quinlan said he believes the OECD is threatening a form of financial protectionism and creating a "tax cartel." He said the group had traveled to Barbados, and now to London, to make the point that "low taxes are a good thing. The low-tax nations attract jobs, capital, and entrepreneurial talent. That should be encouraged."

     Threat to Caribbean Cited

     Mitchell said the financial sector industries, the most vibrant part of the economies of many Caribbean nations, would face economic ruin if they signed on to the OECD effort. "I think you'd effectively destroy them," he said. "First of all, the financial services sector is very significant for many of these jurisdictions, so you're talking about significant economic dislocation."

     Mitchell said that the best way to combat tax evasion is by taxing capital income through withholding. By contrast, he said, information exchanges between sovereign countries would set up "a global web of snitches and informants where countries are telling each other who invested where." 

     Quinlan warned that the United States itself may eventually be subjected to OECD tax rules after smaller nations sign on to the OECD's threefold plan for greater transparency and exchange of information for investigation and prosecution of suspected criminal tax evaders. 

     "The strategy is that, if you're going to attack the enemy castle, you don't attack where the walls are thickest and highest. It's a lot easier to bully Jersey or Antigua or Lichtenstein than it is to try to bully Hong Kong or the U.S.," Quinlan said. "But if you win your battle against the smaller countries, then you can go after the next level. The U.S. would be the ultimate prize because we have so much foreign investment here that is invested here tax free."

     Effort to Slow OECD Momentum

     The activists intend to slow OECD's momentum by "these small countries realize that the OECD is to some degree a paper tiger because it doesn't have any enforcement powers of its own. And its ability to win this battle is completely contingent upon getting all the major OECD countries to agree to financial protectionism."

     They also are lobbying U.S. congressional members to convince them that the OECD plan is bad for the United States specifically and bad for the world economy generally. Quinlan said a Sept. 8 letter from House Majority Leader Richard Armey (R-Texas) to Treasury Secretary Lawrence Summers is "probably the biggest turning point in this whole argument."

     Armey told Summers that adopting "the OECD's policy not only represents a major change in tax policy, it hinders our efforts to reduce the U.S. tax burden and reform our unfair tax code. It also poses serious risk to our continuing prosperity around the globe."

By Patrick Tracey

Copyright © 2001 by The Bureau of National Affairs, Inc., Washington D.C.

 

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