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Inter Press Service

May 18, 2001, Friday

LENGTH: 1121 words

HEADLINE: ECONOMY: EUROPE AND U.S. CLASH OVER PLANS TO TARGET TAX HAVENS

BYLINE: By Julio Godoy

 DATELINE: PARIS, May 18

     BODY: Efforts by the Organization for Economic Cooperation and Development (OECD) to persuade off-shore financial centers to cooperate in a plan to reduce tax evasion and money laundering have become a new subject of dissent between the European countries and the United States.

     While the European countries support the OECD campaign to introduce tougher universal regulations in the off-shore financial centers, the United States advocates different international tax rates to stimulate an efficient taxation of capital.

     This new dissent comes weeks after the U.S. government announced its rejection of the Kyoto Protocol, which sets out phased reductions of the greenhouse gas emissions that cause global warming.

     European governments, on the other hand, have reinforced their view that the Kyoto treaty is critical to long-term environmental protection.

     According to the OECD, off-shore financial centers are "tax havens" that offer illegal shelter to tax dodgers and those with drug money to launder.

     But the targeted states and jurisdictions say they are legitimate financial centers.

     While they agree on the need for international action to eliminate the so-called "harmful tax competition and practices," they demand that the matter be decided within the framework of the United Nations and not through direct OECD pressure on small states.

     Paul O'Neill, U.S. Treasury Secretary, said this week that he was perturbed "by the notion that lower taxes are naturally questionable and that one country or a group of countries could interfere in another country's decision to organize its own tax system."

     "Even if the OECD has accomplished great things, I share many of the reservations expressed against the organization's campaign of tax harmonization," O'Neill added.

     For their part, leading European countries argue that the fight against capital flight and money laundering in tax havens should enjoy priority over the defence of nebulous principles of free competition.

     French Finance Minister Laurent Fabius urged the U.S. government to continue to be part of that fight. "The money that is being laundered in the tax havens is dirty, and comes from prostitution, drugs, and other similar illegal dealings," Fabius told the French newspaper Le Monde on May 16.

     "Up to now," he added, "the governments of the U.S. and France were spearheading the fight against the laundering of this dirty money. It would be a pity if the U.S. abandoned this fight."

     According to diplomatic and financial sources in Paris, Fabius's position sums up the European view on the subject.

     O'Neill was supposed to meet his European colleagues in Paris this week, in the framework of the regular ministerial meeting of the OECD. But he preferred to stay away from the proceedings.

     The OECD has been trying for the past two years to set international rules to reduce tax competition between its members and the off-shore financial centers.

     In June 2000, the Paris-based organization listed 35 countries or jurisdictions as tax havens, including such well-known off- shore financial centers as the Cayman Islands, Bermuda, the Bahamas, Cyprus, Isle of Man, the English Channel Islands of Guernsey and Jersey, and San Marino.

     According to the OECD, a "tax haven" is a jurisdiction where no tax rates or only nominal ones exist, and which lacks transparency, effective exchange of information with other countries and where no demands are made about substantial economic activities that may justify the incoming capital flows.

     These characteristics also constitute, in OECD's eyes, "harmful tax practices" that should be eliminated. The organization has threatened to impose sanctions from next July against the tax havens.

     The conflict has heightened with the position taken by the government of the United States. The latest setback came at a meeting that the 29-member OECD held in Paris last March with representatives of the Commonwealth Working Group.

     The members of the Commonwealth Working Group comprise Antigua and Barbuda, Malaysia, Malta, British Virgin Islands, Vanuatu, Cook Islands and the Caricom Secretariat. On the OECD side, at the March meeting, were Australia, France, Ireland, Japan, the United Kingdom, and the OECD secretariat.

     The Paris meeting followed the one in January in Barbados, which also ended without agreement.

     "The climate in Barbados was very tense, with no signs of cooperation," a participant at the meeting told IPS.

     Participants at the Paris meeting included Owen Arthur, Prime Minister of Barbados, Tony Hilton, Australia's Ambassador to the OECD, and ministers, senior finance and tax officials from 13 countries or associated territories, as well as representatives of the Commonwealth Secretariat, the OECD Secretariat, and the Caribbean Community Secretariat.

     Since March, the parties have not met again, though both sides have continued to discuss the issue by telephone and other forms of electronic communication.

     In a letter addressed to O'Neill, influential Republicans described the OECD initiative as "misguided and fundamentally inconsistent with the market-based principles we both share."

     Similar letters, encouraging low taxes as the locomotive of prosperity, signed by right wing Senators Jesse Helms and Judd Gregg, have been circulating in Washington since last February, a few weeks after President Bush took office.

     In April, during the summit of American governments in Toronto, Caribbean countries briefed O'Neill on their position on tax harmonization, said Sir Ronald Sanders, Antigua's chief negotiator with the OECD.

     Sanders also sought support from Latin American governments. But OECD sources said that leading hemispheric countries back the campaign against tax havens.

     Developing countries such as Argentine and Mexico are losing "several billion dollars in tax revenues yearly," says Shelton Colby, deputy secretary general of the OECD.

     European sources have accused corporate interests of inspiring Washington to take a hard-line position against the plans for tax harmonization.

     "The largest U.S. companies in the past benefited from tax havens through the so-called Foreign Sales Corporations," says a European expert.

     According to the expert, the money being laundered around the world amounts to some $ 1 trillion per year. "This estimation seems to me realistic," said Francois Chesnais, a professor of economics at the University of Villetaneuse near Paris.

     However, he warned that not all dirty money is laundered in the off shore financial centers. "A substantial amount of this money is being washed in the U.S. and in Europe," he said.

 

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