OECD Tax Haven Crackdown Is Out of Line, O'Neill Says

     U.S. Treasury Secretary Paul O'Neill, in a long-awaited statement, said on 10 May that the OECD's tax haven crackdown is "too broad" and out of step with the Bush administration's tax and economic priorities, the Worldwide Tax Daily reported. Barbara Angus, the international tax counsel for the U.S. Treasury Department, was in Paris on 10 May, communicating the same information to officials at the OECD headquarters.

     "I want to make clear what is important to the United States and what is not," O'Neill wrote in a statement in the Washington Times newspaper, which erroneously listed the author as Rob Nichols, Treasury's deputy assistant secretary for public affairs. "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." O'Neill also said he was concerned about the "potentially unfair treatment" some non-OECD member countries have been receiving.

     "The United States does not support efforts to dictate to any country what its own tax rates or tax systems should be, and will not participate in any initiative to harmonize world tax systems," O'Neill wrote. "The United States simply has no interest in stifling the competition that forces governments -- like businesses -- to create efficiencies." O'Neill did make it clear that the United States has an obligation to enforce its own tax laws and "we cannot turn a blind eye toward tax cheating in any form." He also supported the OECD's goal of information exchange between countries -- but on a limited scale -- and said the United States would continue to guard against "over-broad" information exchanges, which could be used for ill gains. "The work of this particular OECD initiative . . . must be refocused on the core element that is our common goal: the need for countries to be able to obtain specific information from other countries upon request in order to prevent the illegal invasion of their tax laws by the dishonest few." O'Neill ended by saying the OECD project, in its current form, is "too broad and it is not in line with this administration's tax and economic priorities."

     O'Neill's tersely worded statement ended months of speculation in the United States and abroad as to where the Bush administration -- which just marked its first 100 days in office -- stands on the tax competition issue. Speculation was partly fueled by the furious lobbying efforts of the Center for Freedom and Prosperity -- a Washington-based nonprofit organization created specifically last fall to lobby U.S. lawmakers to oppose the OECD effort. "This is good news not only for American taxpayers, but for taxpayers around the world," said CFP co-founder Daniel Mitchell, who also serves as an economist at the Heritage Foundation, a conservative think tank. "We were confident the Bush administration would do the right thing once they examined the issue. We also understood that some of the low-tax jurisdictions were not as optimistic. Today's announcement is a clear signal to low-tax and high-tax countries alike."

     Mitchell and CFP President Andrew Quinlan argue that tax competition, fiscal sovereignty, and financial privacy must be universally protected, as they are the keys to unlocking unprecedented economic growth and are principles that go hand-in-hand with just and free societies. "When we started working on this issue six months ago and realized the Bush administration would make the decision up or down, we always thought they would come our way on this," Quinlan said. He and Mitchell cautioned that the war is not over, however. There are still 29 other OECD countries that have yet to speak out against the crackdown, and the 31 July deadline is only 2-1/2 months away. It seems likely, though, that the OECD's threat of sanctions will no longer carry much weight without the backing of the United States -- arguably the most powerful member of the OECD.

     July Deadline Nears

     So far, only 3 of the 35 jurisdictions listed in the June report have agreed to comply with the OECD's demands: the Isle of Man, the Netherlands Antilles, and the Seychelles. Six jurisdictions made advance commitments to the OECD to eliminate their offensive tax practices to avoid mention on the list. They include: Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius, and San Marino. The 32 others that remain on the list would be unwise to comply now, Mitchell said. "If they managed to withstand the tremendous pressure for the past 10 months, especially when it looked like the OECD was going to win, why on earth would they surrender now?" he asked. Quinlan noted that government officials from the British Virgin Islands, whom he visited recently, told him they were contemplating soon giving in to the OECD. "The BVI was looking for a strong signal from the United States. We said give us time, wait until the [OECD] ministerial meeting." He added, "It would be an injustice now if they cave in."

     The OECD ministerial meetings are scheduled for 16-17 May in Paris, although the "harmful" tax competition issue isn't listed on the official agenda. O'Neill wasn't planning to attend, but several Treasury staffers were to be there, including Angus. Bruno Gibert, who co-chairs the OECD's Forum on Harmful Tax Practices, released a statement later on 10 May acknowledging O'Neill's comments and said other OECD member countries were discussing how to respond to his concerns "in a constructive way."

     Source: Cordia Scott, "U.S. Treasury Secretary Says OECD Tax Haven Crackdown Is Out of Line; Treasury and OECD Hold Talks in Paris," Worldwide Tax Daily, May 11, 2001, http://www.tax.org/

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