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CFP Strategic Memo, July 5, 2001

Center for Freedom and Prosperity Strategic Memorandum

To: Public and Private Sector Leaders in Low-Tax Jurisdictions

From: Dan Mitchell, The Heritage Foundation

Date: July 5, 2001

Re: Latest Developments in Fight against OECD

 There is good news and bad news. The good news is that the OECD has been forced to retreat. Indeed, one could even say they have suffered a humiliating defeat. Much to their chagrin, the bureaucrats in Paris have pushed back deadlines and scaled back demands. They have, for all intents and purposes, given up on their tax harmonization agenda. They have even substantially curtailed their call for information exchange.

 The bad news is that the limited information exchange the OECD is seeking low-tax jurisdictions apparently will be expected to provide information on a case-by-case basis is still an egregious assault on financial privacy. Nations have no right to demand that other jurisdictions act as vassal tax collectors. Information exchange is bad tax policy, bad privacy policy, and bad sovereignty policy.

 The Center for Freedom and Prosperity and The Heritage Foundation will continue to aggressively fight against any information exchange for tax purposes. Along with many other groups that have become active in this battle, we will continue our campaign until we have achieved total victory. Some have asked up why we don't declare victory. After all, we have won 80 percent of the battle. Our answer is that there are important principles at stake. Any defeat even if the other side only gets 20 percent of what they wanted means that human freedom will be diminished.

 There are several things that leaders from low-tax jurisdictions should think about as they contemplate how to react to these latest developments:

1. Do not acquiesce to the OECD's latest demands. Even though the OECD has been forced to curtail its agenda, they still are seeking to impose bad tax policy on non-member nations. Unfortunately, good tax policy has never been at issue in this fight. Instead, this is a case of over-taxed, uncompetitive nations trying to use their power to compel less-powerful jurisdictions into becoming fiscal colonies. Yet, as already has been demonstrated, the OECD can be defeated. As such, we offer low-tax jurisdictions the same advice we provided six months ago: Do not rush to capitulate. Even if you are tempted to surrender, you now have until November 30. Bide your time and see if we can win this last stage of the fight.

2. Demand that OECD nations comply with the same rules. This is especially important for jurisdictions that are tempted to capitulate. Every low-tax regime should state that they will not even consider making a "commitment" to the Paris-based bureaucracy until every OECD nation has made a similar commitment. That includes the United States, the United Kingdom, Switzerland, Luxembourg, and all the other tax havens in the rich man's club. Let's see how many OECD nations are willing to have their head-of-state or finance minister sign a humiliating "Memorandum of Understanding." As we say in America, "Sauce for the goose should be sauce for the gander."

3. Highlight human rights and civil liberties. The OECD wants to suspend due process legal protections and run roughshod over longstanding principles of international law. From news reports, it appears that the bureaucrats in Paris want to eliminate the "dual criminality" provision, which states that one country will not help another country enforce a law unless the so-called offense is a crime in both jurisdictions. Not only is this a traditional part of international law, but you can bet your last dollar that OECD nations will not give up their use of this important principle. Does anyone really imagine, after all, that the United States will help China prosecute Tiananmen Square protesters either by extradition or providing information? Does anyone really think that European nations will assist Asian and African nations enforce their laws? The dual criminality principle is just the tip of the iceberg. Does the OECD really intend to deny access to the courts? To do away with "probable cause" before violating privacy? These are just a few of the issues that must be addressed. But if the low-tax jurisdictions surrender before these questions are answered, rest assured that the OECD will unilaterally decide how these questions are resolved.

4. Ask for something in return. "Information exchange" is a very misleading term. In most cases, the OECD is seeking a one-way street. They get information and the low-tax jurisdiction gets nothing except the "privilege" of helping another nation enforce misguided tax laws. When the OECD sends a delegation, low-tax jurisdictions should have a list of demands. This list should include everything from minor requests such as the right to visa-free travel to major conditions such as open immigration (after all, if the OECD wants to impoverish smaller nations by decimating their financial service industries, why shouldn't OECD nations bear the consequences). The OECD will offer "technical assistance," but this is a Trojan Horse. Allowing a bunch of foreign bureaucrats to help change your internal procedures and therefore turn your jurisdiction into a fiscal colony is not exactly a gift.

 In conclusion, we urge all persecuted jurisdictions to band together. Do not let the OECD play the old "divide-and-conquer" game. The last six-nine months have resulted in a series of setbacks and concessions for the OECD, but this is because the bureaucrats have not been able to bully jurisdictions and gain any momentum. In the last week, Aruba capitulated to the OECD, in large part because they were pressured by their Dutch overseers. It is our hope that other regimes particularly sovereign nations will not make the same mistake.


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