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Bureau of National Affairs

No. 165
Monday August 27, 2001
Page G-2
ISSN 1523-567X

Tax, Budget & Accounting

International Taxes
Ambassador of OECD Tax Havens Target Complains Countries Denied Participation

The Organization for Economic Cooperation and Development is not affording equal treatment or expectations to member and nonmember nations in its program to combat harmful tax practices, Ronald Sanders, senior ambassador to the OECD for Antigua and Barbuda, told BNA Aug. 23.

Sanders, who is a member of the tax havens initiative joint working group established during the OECD Commonwealth meeting hosted by Barbados in January (17 DTR G-7, 1/25/01), referred to a set of documents he said has been circulated among country delegates to the OECD. Antigua and Barbuda has been targeted as a haven in the OECD effort.

Sanders cited a July 20 letter from Australian Ambassador and Permanent Representative to the OECD Tony Hinton to delegates within the organization, a letter from Hinton to the Prime Minister of Barbados Owen Arthur, and a set of 17 questions and answers concerning the directives of the organization's harmful tax competition initiative. The documents were obtained by BNA from the Center for Freedom and Prosperity, a watchdog group founded to oppose the OECD havens effort.

Sanders said he is unhappy that the new directives contained in the Q&A--"envisaged," the letter said, by an OECD committee but requiring action of the OECD Council to be effective--had not been made public even though OECD expects jurisdictions it has targeted as tax havens to commit to them by Nov. 30.

Ringfencing Only Concession Indicated

Sanders added that the only concession the OECD appears willing to make, according to the materials, are terms involves the issue of ringfencing, or offering foreign investors lower tax rates than those available to investors resident in the jurisdiction.

He said he believes that concession is based on U.S. opposition to the global harmonization of tax systems.

OECD has not afforded the targeted nations the opportunity to participate in developing the definition of transparency or information exchange, nor to become part of the group that monitors the application, supervision, and enforcement of those principles, Sanders said.

"If you read the document carefully and read the answers to the questions, you will find that they are answered in such a way that they try to convey the impression that all things are equal," he said. "But indeed they are not."

OECD Says Not Official Document

The documents' authenticity has become a point of contention since Aug. 22, when Andrew Quinlan of the Center for Freedom and Prosperity forwarded them to BNA.

Members of OECD's Financial Action Task Force in Paris have not been available for comment independently or through their spokeswoman in Washington, D.C.

When questioned by BNA about the documents, the spokeswoman said, "I really have no comment on it. I don't recognize this as an official OECD document. It seems to raise some of the issues that [U.S. Treasury] Secretary [Paul] O'Neill outlined in his hearing."

However, Lynette Eastman of Prime Minister Arthur's office in Barbados confirmed receipt of Hinton's letter to Arthur along with the OECD's answers to the 17 questions.

From his perspective, Sanders said that Hinton's letter to Arthur has not been made public because of an internal dispute concerning Spain's insistence that Great Britain assure that Gibraltar, a British colony, will end its harmful tax practices. Britain contends that it has no power over Gibraltar, Sanders said, which results in what may become a permanent holdup of a report delineating the terms the OECD expects the "tax-haven nations" to comply with by the end of November.

Sanders questioned how jurisdictions can be expected to sign up for a program they have yet to see.

He added that he could not understand the "shroud of secrecy" over the project and decided to make it public.

"As far as I am concerned, we have handled this business in a transparent manner, in an open manner," Sanders said. "We have not been fearful of talking to the press, of telling the world what our story is and of telling the world how our discussions are going with the OECD," he added.

Hinton's Letters

Hinton's letter to Arthur spells out several modifications recommended by the Committee on Fiscal Affairs. The modifications, said the letter, benefited from constructive discussion in the joint working group, the consultations noted in Barbados, and discussions held with other jurisdictions.

The modifications included an extension of the deadline to achieve transparency and information exchange to Dec. 31, 2005.

Additionally, "OECD Member countries would welcome the removal by tax havens of practices falling within the no substantial activities criterion insofar as they inhibit fair tax competition," the letter said.

Additionally, the potential framework of coordinated defensive measures would not apply to uncooperative tax havens any earlier than they would apply to OECD member countries with harmful preferential regimes, the letter said.

Unexplained Omissions

Sanders said that OECD has refused to explain why nations like Russia and China have not been identified as tax havens.

"The reality is that we are small and [the OECD] is taking advantage of our smallness in the belief that, because we are small, we will not be able to resist them," he said. "There is some truth in that. We are making a fight now, but how long can small countries stand up to the might of the OECD if it decides that the juggernaut must run down the hill?"

Text of the letter and the Q&A are in BNA TaxCore.

By Myrna Zelaya-Quesada

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


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