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Tax Notes International

March 1, 2001

Center for Freedom and Prosperity Meets in Paris

By Trevor Drury

     The Center for Freedom and Prosperity (CFP), a U.S. lobbying group devoted to forestalling the OECD initiative against harmful tax competition, met 28 February in Paris. The group had followed the OECD task force to Barbados and London in January. (For prior coverage, see Tax Notes Int'l, 5 Feb. 2001, p. 587, or 2001 WTD 20-1 (Document link: Database 'Worldwide Tax Daily', View '(Number'), or Doc 2001-2917 (3 original pages).) The CFP was in Paris before the 1-2 March OECD meetings on harmful tax competition to present alternatives to the blacklisted countries. (For prior coverage, see 2001 WTD 40-21 (Document link: Database 'Worldwide Tax Daily', View '(Number') or Doc 2001-5811 (2 original pages).)

Arlington Argus Group's Views

     The meeting opened with remarks from David Burton, partner with the Arlington Argus Group, a firm devoted to issues of law, public policy, and economics. Burton explained that in his opinion, the OECD proposal is misguided because it aims to limit tax competition by forcing low-tax jurisdictions to change their tax regimes. On the other hand, the CFP sees such competition as healthy because it limits the views of national governments as to what tax policies are acceptable. When former U.S. President Ronald Reagan reduced income taxes in the 1980s, other industrialized nations were obliged to follow suit to make their tax regimes competitive, Burton said. Tax competition is the driving force for the U.S. economy, and the autonomy of individual states in the union to set their own tax rates makes it difficult for high-tax states to maintain their regimes, he said.

     In short, Burton believes that territorial tax systems enhance competition and offer an alternative to the draconian measures of attempts to impose extraterritorial taxes. He declared that individual nations have the right to pursue their own tax policies as sovereign states, without outside interference or the threat of economic sanctions.

     In that regard, he expressed the view that the OECD proposal on the exchange of information is an attack on privacy. Quoting Louis Brandeis, a U.S. Supreme Court justice in the first half of the 20th century, Burton affirmed that the measure of privacy a government affords its citizens is a gauge of how civilized it is. Individual nations have the right to determine the degree of privacy their citizens should enjoy, Burton suggested, and before one sovereign state is forced to provide information to another, the information required should be legally obligatory in both countries.

     Burton assured his audience that the issue of tax evasion, raised by the OECD, is a red herring, because any country that wants to collect taxes can do so through legislation for withholding taxes. Similarly, he felt that OECD comments on money laundering were misleading, pointing out that far more laundering of drug money and other illegal income is done in the large markets of the United States and the United Kingdom than in any of the low-tax jurisdictions targeted by the OECD. Burton concluded that the economic sanctions proposed by the OECD are savage and would do great damage to the development and investment programs of the countries concerned.

Center for Freedom and Prosperity's Views

     Burton's remarks about privacy were echoed by Veronique de Rugy, a CFP associate. As a French citizen now living in the United States, she explained that privacy is a moral right worth defending. She said that the French tax system, which has extensive authority to invade the privacy of individuals in its search for tax irregularities, has badly abused the principle of privacy. France's high taxes force people to look for alternative regimes, whereas lowering the overall tax burden would encourage citizens to leave their investments in France, she said. If the OECD was really serious about wanting to reduce tax evasion, de Rugy said, it should be pressing to reduce marginal tax rates around the world.

     The CFP presentation was rounded off by Andrew Quinlan, CFP's president and only full-time employee. Quinlan explained that the United States accounts for 25 percent of the OECD budget, and the strategy of the CFP is to persuade U.S. politicians, particularly in Congress, to cut funding for that OECD initiative. He assured the audience that it is not the CFP's aim to interfere with general funding for the OECD, but that in the CFP's view, that particular project is not in the interests of the United States or the world as a whole. Quinlan said he is confident that the CFP is gaining support in Congress and that there is a reasonable chance the new Bush administration will distance itself from the OECD project.

     In a separate telephone interview, CFP Chair Daniel Mitchell took the opportunity to further clarify the CFP position. The OECD project, he asserted, is contrary to U.S. interests. The United States likes tax competition, Mitchell said, and that view will be strengthened if the United States moves toward a flat tax regime in which corporate income is taxed only once. If citizens choose to invest in countries with low tax systems, it should be remembered that the money they are investing has already been taxed in their country of residence under the income tax system, and they have already made their legitimate tax contributions. In Mitchell's view, the OECD wants to criminalize territorial tax systems, which is not in the best interests of citizens anywhere.

OECD Views

     Nicholas Bray, head of media relations at the Paris-based OECD, rebutted the CFP arguments, characterizing the previous speakers' comments as misrepresentations of the facts. Bray said the CFP is deliberately distorting the picture, as evidenced by the fact that the organization presented only its own views and failed to publicize OECD responses to correspondence. Citing the Cayman Islands as an example, Bray assured the audience that the OECD has no interest in attempting to force individual countries to alter their tax rates. The Cayman Islands currently has no income tax, and the OECD is not pressuring them to change that policy, he said.

     Bray said that the OECD also favors tax competition and that the current project is an attempt to stamp out tax evasion and restore fairness and honesty. The OECD takes the view that it is unfair for citizens to live in a country and enjoy the benefits provided by taxation in that country without shouldering their fair share of the tax burden.

     In the lively debate that concluded the meeting, both sides reiterated their views without moving from their stated positions. The OECD was set to meet with five of the blacklisted regimes 1-2 March to debate the project.

     The CFP is a small concern with an annual budget of less than US $100,000 provided through private contributions from anonymous individuals who support its views.

 

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