No. 93
Monday May 14, 2001
Page G-4
ISSN 1523-567X

Tax, Budget & Accounting

International Taxes
Bolkestein Says EU Regrets U.S. Opposition
To OECD's Harmful Tax Competition Initiative

     The European Union regrets the announcement by Treasury Secretary Paul O'Neill in opposition to the Organization for Economic Cooperation and Development's initiative against harmful tax competition, EU Commissioner Frits Bolkestein said May 11.

     Bolkestein, the commissioner responsible for EU internal markets, told a news conference at the EU Delegation in Washington, D.C., he was "nonplussed" by the reaction to the OECD initiative.

     O'Neill May 10 repudiated the OECD's initiative for potential unfair treatment of non-OECD countries, saying, "I am troubled by the underlying premise that low tax rates are somehow suspect and by the notion that any country, or group of countries, should interfere in any other country's decision about how to structure its own tax system." However, the treasury secretary said the Bush administration has an obligation to enforce taxation of income on a worldwide basis to maintain the confidence of U.S. taxpayers in the fairness of the tax system. "We cannot turn a blind eye toward tax cheating in any form," he said (92 DTR G-3, 5/11/01).

     Bolkestein said he believed the OECD work "had been developing well until now" and called the criticism "demonizing OECD's work." He said that the OECD's work has been misrepresented and that its initiative has been unfairly characterized as an attempt at harmonization of tax laws.

     Harmonization Versus Harmful Practices

     "It is not about harmonization, only about trying to fight harmful tax practices," he said.

     Bolkestein was in Washington wrapping up several days of talks with administration officials, members of Congress, and private sector representatives on issues of data privacy, taxation, and securities markets.

     Bolkestein said he was encouraged by talks regarding an information exchange framework to combat tax evasion he had with Assistant Treasury Secretary for Tax Policy Mark Weinberger.

     Bolkestein said the subject was an area in which the United States and European Union are largely in agreement. However, he added, "technical discussions will be needed to develop a model for information exchanges before a system can be fully implemented."

     O'Neill Announcement Draws Praise

     Separately May 11, Center for Freedom and Prosperity President Andrew F. Quinlan issued a statement praising O'Neill's announcement pulling U.S. support for the tax havens initiative.

     "The secretary should be congratulated for defending America's national economic interests," Quinlan said. "But this is just one battle in a long war for tax competition, financial privacy, and fiscal sovereignty. Until the OECD turns off the lights on this project, CFP will continue to work toward its defeat."

     Quinlan said he will lead a delegation to Paris for an OECD ministerial meeting May 16 and 17. " We plan on keeping a close eye on them as they try to influence the U.S representatives," he said.

     O'Neill's action also drew praise on Capitol Hill. House Majority Leader Dick Armey (R-Texas) said in a May 10 statement, "I would like to congratulate Secretary O'Neill for his recognition that the OECD initiative to end 'harmful tax competition' is 'too broad,' " Armey said. Armey added that he is prepared to assist the Bush administration to prevent illegal tax evasion.

     On May 11, Rep. Charles Rangel (D-N.Y.) issued a statement endorsing O'Neill's action. He said that while reducing illegal tax havens is important, the OECD effort threatened the fragile economies of Caribbean nations.

     By Charles Bogino

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

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