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Tax Notes International

January 2, 2001

Center for Freedom and Prosperity
Encourages Bahamas to Defend Tax Policies

by Robert Goulder

     Dan Mitchell of the Center for Freedom and Prosperity (CFP) traveled to the Bahamas in mid-December in an effort to discourage the Bahamian government from cooperating with the OECD's campaign against tax competition. Unlike the OECD, which is leading the international initiative to eliminate tax havens, the Washington-based CFP argues that fiscal privacy should be preserved and tax competition should be actively promoted rather than prosecuted. (For prior coverage, see Tax Notes Int'l, December 11, 2000, p. 2650, or 2000 WTD 234-2, or Doc 2000-31203 (9 original pages).)

     Mitchell addressed a gathering of the Bahamas Bar Association and the Bahamas Institute of Chartered Accountants December 20 and warned that the OECD proposal to eliminate tax competition at the international level would mean higher taxes and less privacy for all taxpayers. "Globalization is making it harder for governments to overtax because it is increasingly easy for taxpayers to shift their productive activities to lower tax environments," he told the two groups. (For prior coverage, see 2000 WTD 251-10).

     Tax Analysts also learned that Mitchell met privately with key members of the Bahamas' private sector and various government officials December 21-22. Among the high-ranking officials with whom Mitchell spoke were Bahamian Finance Minister Sir William Allen and Central Bank Governor Julian Francis. While Mitchell declined to disclose the details of his conversations with Allen and Francis, he described the meetings as "a positive step forward" and believed his message was "very well received." Mitchell added:

    In each of my discussions there was one theme that remained constant: that there is no need for the Bahamas or the other blacklisted jurisdictions to sell out to the OECD. They should bide their time, no matter how much pressure the OECD puts on them. If the government considers the big picture and thinks things through rationally, it will conclude that the Bahamas is not going to gain anything by capitulating now. We needed to get that message across because the OECD has done a very good job of convincing people that their project represents the unified weight of all OECD member states, when in fact that is not exactly true.

The Bahamas is among the 35 low-tax jurisdictions the OECD described as "uncooperative tax havens." Tax havens still considered uncooperative as of July 1, 2001, face possible defensive countermeasures from the OECD's 30 member states. The Bahamas also appeared on similar blacklists prepared by the G-7's Financial Action Task Force (FATF) and the Financial Stability Forum. (For prior coverage, see Tax Notes Int'l, December 4, 2000, p. 2541, or 2000 WTD 230-1, or Doc 2000-30817 (27 original pages).) To date, only 2 of the 35 blacklisted tax havens-the Isle of Man and the Netherlands Antilles-have formally agreed to work with the OECD in reforming their tax regimes by 2005. (For prior coverage, see Tax Notes Int'l, December 25, 2000, p. 2860, or 2000 WTD 245-1, or Doc 2000-33722 (9 original pages).) Another six jurisdictions-Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius, San Marino-satisfied the OECD's technical criteria for tax-haven status but avoided inclusion on their blacklist by signing letters of advance commitment.

     The CFP was unphased by the Isle of Man's pledge to cooperate with the OECD. Mitchell dismissed their agreement, noting the Manx government stated it will only make the changes demanded by the OECD when every OECD nation agrees to abide by the same rules. According to Mitchell, this is a "poison pill" provision.

     Mitchell's visit to the Bahamas followed a period during which Bahamian officials held separate tax policy discussions with the OECD. Prime Minister Hubert Ingraham met with the OECD's Jeffrey Owens and Frances Horner September 11 in Paris. Ingraham expressed "satisfaction with the substance and the tenor" of the meeting, but there was no indication whether the Bahamas would commit itself to cooperation with the OECD. Perhaps inspired by these meetings, the Bahamian legislature has taken up nine bills that would impact the country's offshore financial regime. One of the provisions would eliminate financial privacy for international business companies (IBCs) organized in the Bahamas. Other bills would establish a financial intelligence unit within the government and introduce new information exchange agreements. Mitchell suggested these measures, which are widely expected to pass, are not as far reaching as the OECD had hoped and are instead geared more toward compliance with the FATF.


Will the Bush Presidency Change Things?

     The CFP believes that the victory of Texas Governor George W. Bush over Vice President Al Gore in the recent U.S. presidential election may have a significant influence the global debate over harmful tax competition. "I reminded our colleagues in the Bahamas that the upcoming change in the U.S. administration, most importantly the departure of [U.S. Treasury Secretary] Larry Summers, is a momentous shift with respect to this issue," Mitchell told Tax Analysts. Mitchell and CFP co-founder Andrew Quinlan believe that much of the impetus for the OECD anti-tax-haven project originated within the U.S. Treasury Department, with some additional input from the finance ministries of France, Germany, and Japan. They strongly suspect the same is true of the FATF's effort to curtail money-laundering activity. Mitchell said:

    In speaking with representatives from the tax havens, one gets the impression that much of the OECD project is being driven by the U.S. Treasury Department. Apparently these blacklisted jurisdictions have each, at one time or another, been lectured ad nauseam by Treasury officials regarding their fiscal policies. I definitely picked up some resentment on their part, that they were being bullied by Washington. So when Bush won the election, there was immense happiness that Larry Summers would soon be on the way out. The sentiment among many people in the Bahamas was that 'ding-dong the witch is dead.' Of course, where it goes from here remains an open question.

Quinlan is uncertain how President-elect Bush personally views the controversy over fiscal privacy and tax competition, but he anticipates that the United States will seriously reconsider its support for the OECD's recent undertakings. "The next Treasury Secretary, Paul O'Neill, is a businessman with considerable international experience and there is a sense that he will be more sympathetic toward market-based policies and tax competition as a positive liberalizing force in the world economy," Quinlan said.

     The CFP has one other ace up its sleeve in the form of Congressman Dick Armey (R-Texas), the majority leader of the U.S. House of Representatives who strongly opposes the OECD position on tax competition. "Everyone we spoke with in the Bahamas was very familiar with the Armey letter and the fact that Republicans will be controlling Congress." He was referring to the letter Armey sent Summers September 7 requesting that Treasury distance itself from the OECD war against tax competition. (For prior coverage, see Tax Notes Int'l, September 18, 2000, p. 1332, or 2000 WTD 177-22, or Doc 2000-23604 (2 original pages).)

     The CFP believes it would difficult, if not impossible, for the United States to enact meaningful sanctions against tax havens given the views of Armey and like-minded members of Congress.


Off to Barbados

     In related news, the CFP issued a press release December 26 indicating it will travel to Barbados to hold a series of meetings January 6-7 with representatives from many of the blacklisted tax havens. (For prior coverage, see 2001 WTD 1-47 or Doc 2001-404). The visit purposefully coincides with meetings the OECD and the British Commonwealth Secretariat have scheduled for January 8-9 with many of the same government officials. Quinlan hopes that participants in the OECD discussions will also consider the CFP's alternative positions. Appearing with Mitchell and Quinlan in Barbados will be tax attorneys Marshall Langer of Shutts & Bowen in London, Bruce Zagaris of Berliner, Corcoran & Rowe in Washington, and a congressional staffer from Armey's office.

     Between the election of Governor Bush and House Leader Armey's outspoken tax policy views, the CFP feels it is on something of a roll. "The OECD is now on the defensive," Mitchell said. Documents

     The full texts of the following documents are available from Tax Analysts:

*  CFP Press Release on Barbados Tax Policy Meetings. Doc 2001-404

*  OECD Press Release on Barbados Tax Policy Meetings. Doc 2001-604.


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