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Bureau of National Affairs

Tuesday February 20, 2001

International Taxes:
Nickles Asks Treasury to Reevaluate
Position Regarding OECD's Tax Avoidance Initiative

     Assistant Senate Majority Leader Don Nickles (R-Okla.), in a Feb. 6 letter to Treasury Secretary Paul O'Neill, asked that U.S. support for the Organization for Economic Cooperation and Development's harmful tax competition initiative be reevaluated and expressed concern that the initiative could be used against the United States. 

     OECD launched the harmful tax competition project to pressure low-tax nations into changing their tax and financial privacy policies using the threat of financial protectionism from OECD nations, Nickles said.

     "The previous administration supported this effort," Nickles said, but "I believe it is contrary to America's economic interest to restrict tax competition." 

     Nickles wrote that the United States's low-tax status has fueled economic growth and enabled the nation's economy to draw investors and savings from many high-tax European competitors. "Those competitors will eventually use the OECD initiative as a weapon to undermine our sovereign right to enact pro-growth tax policies," he added.

     Debate in Government

     The Clinton administration supported OECD's harmful tax competition efforts. 

     "Our position is to be supportive of the work that has been done at the OECD on harmful tax competition," Manal Corwin, treasury acting international tax counsel, told BNA in January . "We are in favor of continued dialogue with these [low-tax] countries as it is an important ingredient to the success of the project" (21 DTR Special Report, S-20, 1/31/01). 

     But the new treasury secretary was noncommittal about the administration's position on OECD and its initiatives at his first press conference Feb. 15, saying, "I guess I'd take a pass at the moment on whether or not we, as an independent entity, want to be strictly allied with what the OECD has said." (33 DTR G-4, 2/16/01).

     Andrew Quinlan, president of the Center for Freedom and Prosperity, Alexandria, Va.--the group spearheading opposition to the OECD's initiative--told BNA that there is a battle within Treasury and the Internal Revenue Service, within the tax policy community, on how the current administration will respond to the issue. 

     Dan Mitchell of the Heritage Foundation, a supporter of CFP's mission, said that Nickles's letter demonstrated that the current administration is seriously reevaluating the issue.

     "We have been working with over 75 different offices on this issue," Quinlan said. "It has nothing to do with tax evasion and money laundering. OECD's initiative is against America's long-term interests."

     OECD Says Position Misunderstood

     "Despite our efforts to communicate the objectives of the OECD's project to identify and eliminate harmful tax practices, there seem to be widespread misunderstandings as to what the OECD's project is all about," said OECD spokesperson Sandra Wilson, responding to the content of Nickels's letter.

     She said the project is aimed at "preventing noncompliance with the tax laws" and is directed against "tax cheats."

     "The project is narrowly targeted to special tax regimes that abet the evasion or abusive avoidance of tax in other countries," Wilson said. "The fact that the commitments of jurisdictions such as Bermuda and the Cayman Islands, which have no income taxation, have been welcomed by the OECD without any requirements to impose an income tax underscores that point." 

     Wilson said that plans to reduce U.S. tax rates would not be affected because the OECD project "does not seek to affect tax rates." In fact, Wilson, said, it might help promote tax reductions. "Cracking down on tax evaders could very well enlarge the U.S. tax base enabling further tax reductions," she said.

Text of Nickles's letter is in BNA TaxCore.

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


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