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Bureau of National Affairs

Monday March 19, 2001

International Taxes
Potential Harm to Developing Nations, U.S.
Cited in Objections to OECD Havens Effort

     Reps. Thomas Reynolds (R-N.Y.) and Donna Christian-Christensen (D-V.I.) each wrote to Treasury Secretary Paul O'Neill in recent weeks to express concern about the Organization for Economic Cooperation and Development's initiative against countries identified as tax havens. 

     The two representatives are the latest in a growing number of Congressional leaders that have written to O'Neill objecting to the United States's support of the initiative.

     "Wealthy OECD nations should not have the right to rewrite the rules of international commerce on taxation simply because they are upset that investors and entrepreneurs are seeking higher after-tax returns," Christian-Christensen wrote in a March 12 letter.

     She said her primary concern was that the OECD initiative "will impose serious economic harm on developing nations--including many in our hemisphere who either belong to, have an association with or have long established friendly ties with the United States."

     Potential for Targeting United States

     Reynold's Feb. 27 letter cautioned O'Neill against supporting an effort that penalizes nations with low tax burdens. "As you know, the United States is a 'tax-haven' compared to many other nations," Reynolds said. 

     "I am concerned that some of our high-tax competitors eventually would use the OECD's attack on low-tax nations as a precedent to pressure us to eliminate our favorable tax and privacy law," he added. "This low-tax status has allowed us to attract trillions of dollars of wealth to our economy, all of which has boosted job creation and economic performance."

     House Majority Leader Richard Armey (R-Texas) sent the first objection letter to then-Treasury Secretary Lawrence Summers in September 2000. Rep. Sam Johnson (R-Texas), Sens. Don Nickles (R-Okla.), Judd Gregg (R-N.H.), and Jesse Helms (R-N.C.), and Rep. Major Owens (D-N.Y.) also wrote to Treasury asking for reconsideration of the U.S. policy of support.

     OECD Responds to Johnson

     OECD Director General Donald Johnston Feb. 13 responded to Johnson's letter "to clarify the objections and scope of the initiative." He said that, despite the group's best efforts, their objectives have been the source of "widespread misunderstandings." 

     Johnston said that "the OECD initiative is narrowly targeted to special tax regimes that abet the evasion or abusive avoidance of tax in other countries. Regimes are targeted only if they fail to meet one of three general standards unrelated to taxation--transparency, effective exchange of information, or nondiscrimination in favor of nonresident investors or investment. 

     "These standards were established to identify regimes whose principal effect is to frustrate the laws of other countries," Johnston added. 

     Johnston explained that the goal of OECD's initiative was to provide a level playing field in cross-border activities. 

     Texts of the Reynolds and Christian-Christensen letters and OECD's response to Johnson are in BNA TaxCore. 

     By Myrna Zelaya-Quesada

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


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