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Tax Notes International

Treasury Secretary Calls U.S. Position on OECD
Tax Harmonization Drive a 'Complicated Question'

 (Last Updated: February 15, 2001 -- 6:36 p.m.)

     Treasury Secretary Paul H. O'Neill said on February 15 it is a "complicated question" whether President Bush's administration supports the OECD's drive to force low-tax jurisdictions to change their tax regimes.

     "I guess I would take a pass at the moment on whether or not we [the United States], as an independent entity, want to be strictly allied with what the OECD has said," O'Neill announced at a press briefing held at the Treasury.

     O'Neill's comment, while seemingly innocuous, gives weight to rising suspicions that the barely one-month-old Bush administration secretly disagrees with the OECD's hard-fought campaign to coerce so-called tax havens to impose higher taxes. When asked the question, O'Neill didn't readily affirm that he supported the effort, as the past administration's Treasury Secretary Lawrence H. Summers has done.

     Meanwhile, on February 15 in Tokyo, Gabriel Makhlouf, the chair of the OECD Committee on Fiscal Affairs, told representatives from nine OECD countries and the Pacific Islands Forum that there has been no change in the U.S. position on that issue. Makhlouf added that he has been in contact with O'Neill's representatives and that he has no indication that the U.S position has changed.

     In June 2000 the OECD blacklisted 35 low tax jurisdictions as tax havens in its report "Toward Global Tax Cooperation" and set a July 2001 deadline seeking cooperation from the jurisdictions. (For the full text of this report, see 2000 WTD 124-11 or Doc 2000-17602 (31 p.).) According to the OECD report, jurisdictions that do not agree to cooperate by July 1, 2001 -- now the OECD is saying July 31, 2001 -- risk being subjected to punitive sanctions by OECD member countries.

     Why does the OECD have cause to fear that the new U.S. government may rain on its parade? Well, the Republicans now control the White House, and House Majority Leader Richard K. Armey, R-Texas, publicly criticized the OECD's campaign last fall. In a September 2000 letter to the previous Clinton administration's U.S. Treasury Secretary Lawrence H. Summers, Armey said the OECD's drive was a bad move, in that it would result in higher taxes for U.S. citizens and would weaken the U.S. economy. The effort would also limit developing nations' attempts to promote economic growth, making them less likely to cooperate with the United States in its "war on drugs," he said.

     After suffering through months of criticism from the Center for Freedom and Prosperity (CFP), which made it its mission to travel to various low-tax jurisdictions to persuade them to hold their own, the OECD agreed during meetings in January in Barbados to participate in interactive discussions. It agreed to meet with representatives from the singled-out jurisdictions to develop a working group to try to produce a mutually acceptable solution. The group was touted to represent the first multinational tax body to address the interests of the world's leading industrialized nations, as well as less-developed low-tax jurisdictions.

     The working group, composed of 13 nations, met in London on January 26-28. The participants included Antigua, Barbuda, Australia, Barbados, the British Virgin Islands, the Cook Islands, France, Ireland, Japan, Malaysia, Malta, the Netherlands, the United Kingdom, and Vanuatu. Tony Hilton, Australia's ambassador to the OECD, cochaired the meeting with Barbados Prime Minister Owen Arthur. While the meeting clearly expressed the desire of the two sides to discuss their differences, it produced little else. The working group is scheduled to meet again in Paris on March 1-2, but rumors are surfacing that the group may crumble before then.


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