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Center for
Freedom and Prosperity
 P.O. Box 10882
Alexandria, Virginia


New York 29 March 2001

US Group Attacks Qualified Intermediary Rules

by Mike Godfrey,

     US lobbying organisation The Centre For Freedom And Prosperity, which has been prominent in defending offshore jurisdictions against the depredations of the OECD, is also taking up the cudgels against the IRS's new Qualified Intermediary regime, which imposes reporting and withholding requirements on banks and other financial institutions worldwide.

     The CFP says that far from achieving their intended result of reducing tax evasion by Americans who place wealth offshore, the result of the new regulations will be 'capital flight out of the U.S. market, less future foreign investment in the US, a loss of privacy, a reduction in national sovereignty, a reduction in international commerce, and a discriminatory burden against medium- and small-sized businesses.'

     The CFP also worries that if the US insists on imposing its laws on the rest of the world, then how will it be able to resist calls for the reverse situation, when foreign countries want to impose their tax collection rules on the US?

     It's true that the QI regulations are burdensome, bureaucratic and imperialistic. Also they act in a contrary direction to the tendency towards 'territorial' taxation which many liberals think will be the result of globalisation and the development of the Internet. In a territorial taxation system, countries tax only income sourced on their territory or remitted to it - if applied world-wide the result would evidently be a highly competitive international fight for capital which would enormously benefit people and would tend to shrink the power of states. That's why the outgoing administration was so opposed to the idea, and why they introduced draconian, centralising legislation like the QI rules.

     The CFP says that the administration has failed to perform legally-required impact assessments of the results of the QI rules: 'It appears that the IRS, so far, has published no studies analyzing the risks associated with the QI regulations. More specifically, it appears that the cost/benefit analysis required by the Administrative Procedures Act has not been completed.' The CFP thinks that such a study would show how damaging the new rules will be.

     The CFP's commentary on the Qualified Intermediary rules can be found at


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