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Bureau of National Affairs

Monday March 5, 2001

International Taxes

OECD Tax Competition Meetings Fail To
Yield Announcement, Raising Questions

By Myrna Zelaya-Quesada

     Meetings in Paris March 1-2 between the Organization for Economic Cooperation and Development and British Commonwealth jurisdictions on cross-border taxation matters failed to produce an announcement, leaving observers concerned that an amicable resolution of differences would not be reached.

     "What we do know is that the low-tax countries went to caucus among themselves," a source told BNA, adding that the feeling was "that this would presumably lead to some form of proposal that might be presented to the OECD." 

     "I suppose if it is a capitulation, [the OECD] would welcome it," the source said, but if the jurisdictions' proposal "showed 'independence,' [the OECD] would reject it."

     Heated Written Exchange

     The March 1-2 discussions followed heated correspondence between the two groups. 

     Commonwealth Secretary General Don McKinnon March 1 issued a statement questioning OECD's intent to resolve the differences the organization has with nations it has identified as practicing harmful tax competition and citing a document described as the minutes of a meeting of the OECD Fiscal Affairs Committee (FAC). 

     According to a Commonwealth news release, McKinnon felt the document showed that the Fiscal Affairs Committee was setting itself up as " the world's financial policeman." 

     "This minute clearly confirms the suspicions of many that the FAC not only writes the rules, but wishes to be the prosecutor, judge, jury, and jailor," McKinnon wrote. 

     He referred to January meetings in Barbados and London as demonstrating frank and constructive discussions between the OECD and Commonwealth non-OECD members. "The outcomes of these discussions are important to the Commonwealth developing countries which the OECD has threatened to list as 'unco-operative tax havens,' " he said. 

     "For these countries, the fabric of their economies and their societies is at stake, which is why so much time and effort has been put into these talks to enable the OECD to understand their concerns," he said. "But it now appears that the OECD may have a different agenda."

     OECD Defends Its Actions

     OECD Director General Donald Johnston responded in a brief letter, saying, "I regret very much the statement you issued today based on a document presented as 'a minute of the Fiscal Affairs Committee of the OECD'... and I can assure you that this is not an OECD document."

     Johnston also reprimanded McKinnon for not verifying the source of the document. "To issue a public statement without having made any attempt to verify the accuracy of the source is most inappropriate," he said.

     Johnston added that issuance of the statement the day before the scheduled Paris meeting between the Commonwealth and OECD had "not increased the chances of a successful outcome."

     Nicholas Bray, spokesman for OECD in Paris, issued an e-mail on the Commonwealth's statement. "The Commonwealth Secretariat did not contact the OECD before issuing this statement to establish whether or not the document in question was an official minute of an OECD meeting," the e-mail said.

     "Having had an opportunity to view a document which I believe to be that on which Mr. McKinnon is commenting, I can say that it is not an official minute of any OECD meeting."

     Wording Is Unclear

     Daniel Mitchell of the Heritage Foundation, in Washington, D.C., said he had not seen the document that caused the Commonwealth to react so strongly, but he questioned the wording of both OECD responses. "Neither statement seems to say to you that this document [the meeting minutes] was not produced by the OECD." 

     Referring to the phrase in the Johnston letter, "I can assure this is not an OECD document," Mitchell said that the wording "is not the same thing as saying the statements weren't true." 

     "I get a feeling by reading what they are writing, they are implying the whole thing was a hoax, but if it was a hoax, why did they not just say, 'this whole thing was a hoax, no one from the OECD ever said any such thing,' " Mitchell added. 

     "Neither the letter nor the e-mail from Nicholas Bray unequivocally denies that the document, none of us have seen, doesn't contain an accurate reflection of what someone in the OECD said."

     "I assume time will reveal the truth on this," he added.

     More Congressional Letters

     Meanwhile, Sens. Jesse Helms (R-N.C.) and Judd Gregg (R-N.H.) joined other members of Congress who wrote to the treasury secretary concerning OECD.

     Helms wrote Feb. 14 to Treasury Secretary Paul O'Neill saying he found it troubling that "the OECD threatens many low-tax countries simply because they are luring investment away from high-tax nations." He said such an approach was "economically unwise and morally questionable," and asked O'Neill to address the problem at a future international gathering.

     Although the OECD has done good work in the past, Gregg said in a Feb. 27 letter to O'Neill, "This initiative would force low-tax countries to dismantle their tax systems or face financial protectionism from the OECD countries."

     Gregg's letter was the sixth communication from Congress asking the Treasury Department to review U.S. support for the OECD harmful tax initiative since Sept. 8, when House Majority Leader Richard Armey (R-Texas) first wrote then-Secretary Lawrence Summers opposing the Clinton administration's support for the project. 

     "American citizens would not respond well if other countries tried to dictate our tax laws, and it hardly seems right for us to participate in a campaign to force other nations to change their tax laws," Armey said in his letter.

     Others who have written to oppose the initiative include Senate Assistant Majority Leader Don Nickles (R-Okla.), Rep. Sam Johnson (R-Texas), and Rep. Major Owens (D-N.Y.)

     Text of the congressional letters is in BNA TaxCore. 

     By Myrna Zelaya-Quesada

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


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