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Tax Notes International

January 9, 2001

Armey Aide Sees Growing Discontent
With OECD Tax Haven Campaign

by Robert Goulder

     Elizabeth Tobias, a tax adviser to House Majority Leader Richard K. Armey, R-Texas, told reporters January 7 in Barbados that opposition to the OECD's campaign against tax competition may be growing on Capitol Hill. Document Type: News Stories Tax Analysts Document Number: Doc 2001-1198 (3 original pages) Tax Analysts Electronic Citation: 2001 TNT 8-4 Citations: (January 9, 2001)

=============== SUMMARY ===============

     Elizabeth Tobias, a tax adviser to House Majority Leader Richard K. Armey, R-Texas, told reporters January 7 in Barbados that opposition to the OECD's campaign against tax competition may be growing on Capitol Hill. Tobias was in Barbados as the guest of the Washington-based Center for Freedom and Prosperity, which hosted a symposium to promote fiscal privacy and what it sees as the benefits of tax competition. The center's mantra is that "tax competition should be celebrated, not persecuted." "I am here to tell you that signs are good that the new administration will not support the OECD's current efforts, but we don't know for sure," Tobias said.

=============== FULL TEXT ===============

     Elizabeth Tobias, a tax adviser to House Majority Leader Richard K. Armey, R-Texas, told reporters January 7 in Barbados that opposition to the OECD's campaign against tax competition may be growing on Capitol Hill. Tobias was in Barbados as the guest of the Washington-based Center for Freedom and Prosperity (CFP), which hosted a symposium January 6-7 to promote fiscal privacy and what it sees as the benefits of tax competition. (For prior coverage, see Doc 2000-31203 (8 original pages), 2000 TNT 234-4 , or H&D, Dec. 5, 2000, p. 2284.)

     The CFP mantra is that "tax competition should be celebrated, not persecuted." "I am here to tell you that signs are good that the new administration will not support the OECD's current efforts, but we don't know for sure," Tobias said. One of the reasons the next administration's stance on tax competition isn't better understood is that the transition team of President-elect George W. Bush got off to a late start because of the contested election results. Tobias also reviewed the basis for a strongly worded letter Armey sent to U.S. Treasury Secretary Lawrence Summers, calling for the U.S. government to withdraw its support for the OECD program on tax havens. (For text of Armey's letter, see Doc 2000-23604 (2 original pages) or 2000 TNT 177-10 ; for related coverage, see Doc 2000-31753 (4 original pages), 2000 TNT 237-4 , or H&D, Dec. 8, 2000, p. 2408.) Summers recently sent a reply back to Armey.

     International tax attorney Bruce Zagaris of Berliner, Corcoran, & Rowe in Washington also delivered a presentation on issues tax havens should raise in their negotiations with the OECD. One of his principal themes was that the OECD lacks a mandate to direct the activities of, or to impose demands upon nonmember states. He also argued that the U.S. government is violating many of its exchange-of-information agreements with tax treaty partners. The breach results from three factors: the termination of section 936 financing benefits, the value of convention deductions being diminished by the alternative minimum tax, and the repeal of the foreign sales corporation tax regime.

     The CFP also offered a position paper on tax competition that was prepared by tax attorney Marshall Langer of Shutts & Bowen in London. In summarizing Langer's contribution, Zagaris argued that many industrialized nations -- including the United States and the United Kingdom -- satisfy the OECD's technical criteria for being tax havens. Zagaris said income earned from U.S. bank deposits held by nonresidents is not subject to U.S. taxation. He also emphasized that U.S. tax authorities have full information-exchange practices with only one country -- Canada. Langer's paper suggests that the United States and other prominent OECD states should have been included among the blacklisted tax havens. "The OECD members have an obvious interest in not classifying themselves as tax havens, even though the amount of money involved is clearly much more than is at stake among the so-called tax havens," Zagaris said. Viewed that way, it could be argued that the United States is the largest tax haven in the world.

Two Men on a Mission

     The fledgling CFP, which has existed only a few months, has made no secret of its strategy in opposing the OECD stance on tax competition. It believes U.S. lawmakers will never enact meaningful sanctions against the 35 jurisdictions on the OECD tax haven blacklist. "If the blacklisted countries only understand that, they would realize they have no reason to fold before the OECD," CFP President Andrew Quinlan told reporters. Even if the CFP's strategy succeeds domestically, critics suggest that the other 29 OECD member states remain free to impose defensive measures against uncooperative tax havens.

     CFP board member Dan Mitchell, a senior fellow at the Heritage Foundation in Washington, conceded that other OECD states could enact sanctions against tax havens, but added, "I would be extremely surprised if other countries impose sanctions after it becomes clear such measures won't fly in the United States. It is a fact that the United States is the 16-ton gorilla of the global economy. Other industrialized nations would only be shooting themselves in the foot by enacting sanctions without U.S. support for the project. If they did, private capital would simply relocate -- probably to the United States."

     Mitchell's and Quinlan's influence with the blacklisted tax havens surprised a few people during the OECD consultations in Barbados. Several of the targeted jurisdictions credited the pair as "a key factor" in their strategic decisionmaking. The CFP managed to ruffle some feathers during the opening session of the OECD consultations January 8 when Mitchell's and Quinlan's names were added to the delegation of Antigua and Barbuda. An Antiguan official told Tax Analysts the move was justified on the grounds that each country has the sovereign right to select its own delegation.

Code Section: Miscellaneous Geographic Identifier: Organization for Economic Cooperation and Development; United States; Barbados

Subject Area: Harmonization of taxes Multijurisdictional taxation Tax havens

Industry Group: Banking, brokerage services, and related financial services

Index Terms: international organizations international taxation, tax competition Organization for Economic Cooperation and Development tax havens

Cross Reference: For text of a related letter from House Majority Leader Richard K. Armey, R-Texas, see Doc 2000-23604 (2 original pages) or 2000 TNT 177-10 ;  for related coverage, see Doc 2000-31753 (4 original pages), 2000 TNT 237-4 , or H&D, Dec. 8, 2000, p. 2408. For related news, see Doc 2001-1006 (3 original pages), 2001 TNT 6-5 , or H&D, Jan. 9, 2001, p. 558; also see Doc 2000-30876 (5 original pages), 2000 TNT 231-4 , or H&D, Nov. 30, 2000, p. 2143, and Doc 2000- 31203 (8 original pages), 2000 TNT 234-4 , or H&D, Dec. 5, 2000, p. 2284.

Author: Goulder, Robert

Institutional Author: Tax Analysts

 

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