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Bureau of National Affairs

No. 83
Monday April 30, 2001 Page G-4
Tax, Budget & Accounting

International Taxes
Group Questions Weinberger on Safety Of OECD Information Exchange Requirement

     Representatives of four interest groups said April 24 in a letter to Mark Weinberger, assistant treasury secretary for tax policy, that supporting a global system initiated by the Organization for Economic Cooperation and Development requiring the exchange of private financial information would be a bad economic policy and a fundamental violation of civil liberties and the right to privacy.

     The authors questioned the safety of the information exchange requirement, saying that "a number of OECD countries have engaged in significant human rights violations at various times" and questioned how the Treasury Department would safeguard that the information exchanged would not be used by governments to persecute innocent individuals.

     Once information sharing becomes routine among the 30 OECD countries and 41 targeted jurisdictions, it is highly likely that other governments will insist on becoming part of the global financial information network, the letter said.

     It raised a red flag over the requirements that countries with histories of human rights violations would have to meet in order to be entitled to this information and asked how Treasury can assure that intelligence services will not use the information against their own citizens.

     The signatories--Dan Mitchell of the Heritage Foundation, Richard Rahn of Discovery Institute, David Burton of the Prosperity Institute, and Andrew Quinlan of the Center for Freedom and Prosperity--said Treasury needs to reevaluate the OECD's harmful tax competition and information sharing initiative.

     Effect on Social Policy

     "As a matter of principle, we think that financial privacy is an important value; one that should not be cavalierly dispensed with," Rahn said.

     Rahn, whose work experience includes chairing the Bulgarian economic transition team and being U.S. adviser on Russian economic transition for economic reform, told BNA that the OECD is not in a position to offer assurance that their information exchange requirement will not be abused.

     He questioned how information can be shared on a global basis when leakage of government files has done damage to many individuals within the United States. "We have good reason for keeping things like FBI files confidential, IRS records confidential," he said."We know there are people and governments around the world who misuse information on individuals."

     He said that when the Nazis invaded the Netherlands they had easy access to citizen's backgrounds and religions because the Dutch passport office maintained records of this information. "It was very easy for them to find the Jews because the government had collected all this information. I'm sure the Dutch authorities who originally collected the information had no ill intent, but others do," he said.

     Economic Implications

     Mitchell, who agrees with the OECD that people should pay their fair share and not cheat the tax system, said the organization is trying to enforce the wrong tax policy.

     "If we actually engage in the appropriate and desirable tax reforms, the entire alleged problem of evasion would disappear," he said. "For the simple reason that if countries are no longer double taxing income that is saved and invested, nor trying to impose tax on income which is outside their borders, then everything which supposedly is evasion today, no longer is evasion," he added.

     Rahn said the OECD initiative discourages foreign investment within the United States. "We are already getting anecdotal information on the foreign investment funds from the end of last year when the new [qualified intermediary] and information reporting regulations went into effect at the end of the Clinton administration. It has had adverse impact in our stock market, which means adverse impact on employment in America."

     Burton added that he thinks tax competition is a constructive economic force in the global environment because it limits the ability of governments to raise their taxes without providing something constructive in return.

     Question of Fairness

     Burton added that U.S. adoption of OECD policies raises the question of fairness because the United States is not willing to live by the rules it wants applied to the smaller countries.

     "It is highly probable that the OECD initiative constitutes a violation of the free trade commitments the United States has made by virtue of its membership in the World Trade Organization," he said.

     "Assuming that we do not prevail and convince the United States to withdraw from the initiative, it is highly likely that it will be litigated at the WTO and that huge hunks of the OECD initiative will be overturned," he said.

     "In the interim, a tremendous amount of damage will be done," he added.

     Approaching Treasury

     Rahn said there is tension within the administration because the White House agrees that the OECD initiative is "very bad policy" but Treasury is still debating the issue. White House media relations staff told BNA April 27 that they were unfamiliar with the issue.

     Mitchell said the greatest challenge for the coalition opposing the initiative is that the bureaucrats at Treasury and IRS are of the opinion that it is in the United States' best interest to destroy financial privacy in other countries so that the United States can more effectively enforce its worldwide tax regime.

     He said the group would like to try and speak with Treasury Secretary Paul O'Neill. "If O'Neill is presented with both sides of the issue, we think he will do the right thing," Mitchell said.

     The group has received the support of 15 Congressional members and 26 of the 37 congressional black Caucus members in 17 letters that have been sent to Treasury against the OECD's global initiative.

     "What we hope is that Treasury will drop the whole OECD initiative as a bad idea but at the very least we hope they postpone any decision on the issues that we have raised in the letter, in discussions with the White House, and letters from Congress," Rahn said.

     Burton said the administration should take at least six months to evaluate the implications of the initiative. "They have only been in office for a short period of time, I am confident that once they view the initiative they will change their policy," he added.

     Burton added that OECD's mid-May meeting would provide a logical time for the administration "to press the pause button."

     OECD declined to comment on the letter.

     Text of the letter is in BNA TaxCore.

     By Myrna Zelaya-Quesada

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


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