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Bureau of National Affairs

Thursday March 1, 2001

Tax, Budget & Accounting

International Taxes:
OECD Tax Competition Work Attacked In
Run-Up to Meeting on Tax Havens

By Lawrence J. Speer

     PARIS--Representatives of a conservative Washington-based think tank lashed out Feb. 28 against efforts led by the Organization for Economic Cooperation and Development to curb global tax competition and crack down on tax havens, suggesting the initiative was "misguided" and will likely be killed by the Bush administration.

     "The OECD proposal is aimed at limiting tax competition ... [and] is an attack on national sovereignty," said David R. Burton, a law, public policy and economics expert with The Argus Group, who presented part of the case against the OECD. "We think nations should have the right to establish their own tax systems," Burton said during a briefing Feb. 28. 

     Burton was seconded by Andrew F. Quinlan, president of the Center for Freedom and Prosperity, a lobbying organization created to muster opposition to the OECD's harmful tax competition initiative. 

     The CFP--which is closely aligned with the Heritage Foundation but refuses to disclose its source of income--decried the OECD plan as a threat to free trade, global commerce, personal privacy, and national sovereignty. Quinlan called the Paris briefing to express support for jurisdictions scheduled to meet with OECD officials and member countries March 1-2 to discuss their opposition to the harmful tax initiative.

     The initiative, launched with fanfare by the 30 industrialized nations of the OECD in June 2000, aims to identify and punish "non-cooperative" tax havens, defined as nations that refuse to share banking and other financial information while actively seeking to attract mobile financial activities for tax evasion purposes.

     The OECD published an initial list of suspected tax havens in June 2000, and has given the 35 jurisdictions a July 31, 2001, deadline to express a formal commitment to cooperate by 2005 or face a host of punitive diplomatic, economic, and financial sanctions.

     Nine jurisdictions--Bermuda, the Cayman Islands, Cyprus, the Isle of Man, Malta, Mauritius, the Netherlands Antilles, San Marino, and the Seychelles--have since committed to a memorandum of understanding on key areas of cooperation including transparency, nondiscrimination, and effective information exchange, and are no longer facing the risk of sanctions (39 DTR G-1, 2/27/01).

     OECD Anticipates More Participants

     Several of the remaining jurisdictions, including some of the largest and most important, also are likely to publicly announce their participation in the OECD process in the coming months, an official told BNA Feb. 28, but the rest remain locked in discussions with the OECD over whether, and how, they should seek to cooperate. 

     OECD officials have held numerous meetings in recent months with targeted jurisdictions, including a January meeting in Barbados with Caribbean jurisdictions, a February meeting in London with members of the Commonwealth that have landed on the suspected tax havens list, and a subsequent February meeting in Japan with Asian and Pacific island nations targeted by the harmful tax competition initiative.

     Some observers say that the gridlock and widely divergent approaches held by the two sides mean that the March 1-2 meetings in Paris may represent a last chance to reach some sort of agreement on the road forward. "If we remain so far apart after the meetings this week, why go on having meetings? It takes two to tango," one participant told BNA Feb. 28. 

     The CFP said the OECD campaign against offshore financial centers is not really about fighting tax evasion or money laundering, but really "a debate between supporters of territorial taxation and worldwide taxation." It also predicted that the initiative represents the first step in a bid to create "an international tax cartel" of high-tax nations that the targeted jurisdictions should resist. 

     Officials at the OECD disagreed strongly with these characterizations, insisting that the program is not intended to harmonize tax structures or tax rates, set minimum levels of taxation, or curtail legitimate tax planning. Instead, they said the initiative is part of a broader objective of providing a level playing field in the tax area for cross-border activities that will facilitate fair and transparent tax competition, which is described in one OECD paper as "healthy, and indeed, to be encouraged."

     About-Face From Business Groups

     Many business groups--led by the Business and Industry Advisory Committee to the OECD, the principal private sector lobby before the multilateral organization--expressed hostility to the OECD initiative when it was first unveiled in 1998. BIAC has since done an about-face, issuing a joint policy paper with the OECD Feb. 28 that described its support for an initiative that is "intended to ensure that all taxpayers meet their tax obligations, ... a goal that is as important to business as to governments." 

     While the OECD vaunted the nine cooperation commitments from once-targeted jurisdictions and its newfound support from BIAC, CFP pointed to high-level converts to its cause. It has won public support from top elected officials including House Majority Leader Dick Armey (R-Texas), Senate Majority Whip Don Nickles (R-Okla.), Rep. Sam Johnson (R-Texas), and Rep. Major R. Owens (D-N.Y.), all of whom have lobbied Bush administration officials to pull back from the OECD initiative, which was vigorously supported by the Clinton administration. 

     Quinlan and his allies said they are betting that congressional opposition to the OECD plan can eventually be used as a bargaining chip in the stiff political fight expected over the Bush administration's planned tax cut package. "We think this is a winnable fight from our end, and we are going to keep working on it until the U.S. pulls out," Quinlan said, estimating the likelihood of a Bush administration about-face at "maybe a 50-50 chance today, or even 60-40."

     The OECD official, on the other hand, noted that the United States has not expressed any indication of pulling back from the initiative, pointing out that officials in Washington, D.C., have long made their demands for greater transparency and effective information exchange in international tax matters a bipartisan issue. 

     Further information on the OECD harmful tax competition initiative is available via Internet at http://www.oecd.org/daf/fa/harm--tax/harmtax.htm. 

     Information on the Center for Freedom and Prosperity campaign against the OECD project is available at: http://www.freedomandprosperity.org. 

     By Lawrence J. Speer

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

 

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