June 15, 2001

Economy: U.S., Allies to Ease Curbs On Offshore Tax Havens

By MICHAEL M. PHILLIPS

Staff Reporter of THE WALL STREET JOURNAL

WASHINGTON -- In a victory for an alliance of African-American Democrats and antitax Republicans, Bush administration negotiators reached a tentative agreement with U.S. allies to weaken an international crackdown on offshore tax havens.

At meetings in Paris this week, the 30-nation Organization for Economic Cooperation and Development gave in to U.S. demands and agreed to drop efforts to force offshore tax havens out of the business of offering special tax breaks to foreign companies and investors. The U.S., however, agreed to continue an international campaign to force tax havens, such as the Bahamas and Monaco, to disclose to the Internal Revenue Service and other OECD tax authorities account information in specific cases of suspected tax evasion.

"This project can be very useful in setting up a process for countries to pursue tax cheats," a Treasury spokeswoman said. "We're encouraged that we can make progress on that front."

The agreement also would delay by several months OECD's publication of a blacklist of uncooperative tax havens that could be subject to unspecified sanctions. Under its original schedule, the OECD was to decide by July 31 which of the 32 countries and territories deemed to be tax havens have failed to cooperate with the three-year-old initiative. Many of the tax havens are in developing nations. OECD negotiators will meet at the end of the month to finalize the agreement.

The Clinton administration enthusiastically supported the initiative as a way to combat tax evasion. But soon after taking office, Treasury Secretary Paul O'Neill warned U.S. allies that he didn't share that view. Egging him on were House Majority Leader Dick Armey (R., Texas) and other conservatives who condemn the effort as a ploy to raise global tax rates, and black lawmakers who worried that a crackdown will hurt developing nations that rely on foreign deposits and investment.

"The issue where there has been more discussion is over whether countries should be able to set tax rates as they see fit," John Taylor, undersecretary of the Treasury for international affairs, said in Paris this week.

The administration's efforts to hobble the OECD tax-haven project have alarmed some lawmakers, government watchdogs and former IRS commissioners. Sen. John Kerry (D., Mass.) wrote Mr. O'Neill this week, arguing that an American withdrawal from the OECD effort "would be a major step backwards in the effort to reduce tax evasion."

The Democratic-controlled Senate Finance Committee plans to hold hearings on the issue, but no date has been set.

Write to Michael M. Phillips at michael.phillips@wsj.com1

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