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CFP Strategic Memo, September 3, 2001

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

From: Dan Mitchell, The Heritage Foundation

Date: September 3, 2001

Re: The "17 Questions" and continued OECD hypocrisy
_______________________________________________________________

Letter from Ambassador Hinton (PDF)
17 Questions (PDF)

The OECD finally has responded to questions that were asked by the low-tax members of the OECD/non-OECD task force (the one set up following the January meeting in Barbados). The response - along with the original questions - is available on the Center's website (also linked above), but it offers very little new information. Indeed, other than continued arrogance, there is no reason why it took the bureaucrats several months to concoct their answers.

 Fans of Arthur Conan Doyle's Sherlock Holmes will recall the famous reference to "the dog that didn't bark." This omission was a clue that Holmes used to solve a case. Likewise, the OECD's response is perhaps most noteworthy for "the questions that were not answered." Specifically, the Paris-based bureaucracy is demonstrating an amazing capacity for evasion by refusing to give forthright answers to questions about whether the OECD is using different standards for member nations and non-member nations.

 The OECD's favorite tactic is to answer a question, but not the question that was asked. For instance, the low-tax countries asked several questions regarding whether OECD member nations would be required to play by the same rules. These questions were not hostile or confrontational. The low-tax nations did not use the opportunity to ask what gave the OECD the right to set rules for non-members. The low-tax nations did not point out that the rules are designed to make taxpayers hostage to uncompetitive high-tax governments. All they did was ask - as we say in America - whether sauce for the goose was also sauce for the gander.

 So how did the OECD respond? With obfuscation. The bureaucrats regurgitated assertions that OECD member nations are committed to eliminating their "harmful tax practices," but they did not answer the questions. The reason, of course, is that they did not have any good answers. This is because:

    1. Unlike persecuted low-tax jurisdictions, the OECD's member nations are not being asked to sacrifice their fiscal sovereignty and radically alter their domestic policies. All they have to do - in theory - is alter a handful of specific tax provisions (less than 2 provisions on average per OECD country). In a clear display of double-standards, the OECD did not identify any of its members as "tax havens" even though at least four countries qualify according to the criteria set forth by the Paris-based bureaucracy.

    2. Unlike persecuted low-tax jurisdictions, there is no credible threat of financial protectionism against OECD countries. The responses to the "17 questions" acknowledge - for the first time - that nations theoretically could impose sanctions against OECD members, but the tone of the responses suggests this is about as likely as me being named to head the OECD's Fiscal Affair's Committee. Does anyone really think, after all, that any nation is going to impose financial protectionism against the U.S. or the U.K.?

 Continued double-standards should come as no surprise. The OECD has created a Kangaroo Court for low-tax jurisdictions. Due process is thrown out the window, virtue is redefined as vice, and the bureaucrats get to be Judge, Jury, and Executioner. Member nations, by contrast, are allowed to use a "self-assessment" process.

 The failure to give honest responses is the most noteworthy feature of the "17 questions," but it is worth noting that the OECD continues to push the notion that low-tax nations should be compelled to put the laws of other nations above their own. Specifically, the OECD wants to compel low-tax jurisdictions to help high-tax nations collect taxes on an extra-territorial basis. The OECD no longer is seeking unlimited information exchange, and this is a partial victory, but information exchange on a case-by-case basis in response to specific requests is still bad tax policy - particularly with the European Union's savings tax directive just over the horizon.

 Moreover, the attack on sovereignty inherent in any proposal for limited information exchange is accompanied by an assault of due process legal protections. In the July 5, 2001 strategic memo, the point was made that this is a vulnerability that should be exploited. That portion of the memo stated:

    "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.

 Low-tax jurisdictions should use these arguments. We have maintained from the beginning that the United States is the key to this battle. If the U.S. decides to part company with Europe's welfare states, the OECD initiative will collapse (and it is teetering on the edge right now). This is why the points outlined above should be utilized when low-tax nations have conversations with American policy makers. And use the hypocrisy angle: Ask whether the U.S. has a right to infringe on the sovereignty of low-tax countries when the U.S. (quite properly) refuses to sacrifice its sovereignty to the International Criminal Court. The Kyoto Treaty is another example. In case after case, U.S. lawmakers assert the right to control its U.S. domestic policy.

 There are many nations that are impervious to the hypocrisy argument. They are willing to say one thing in public and then do the opposite in private - a practice that is somehow perceived as sophisticated. Fortunately, Americans still somewhat old-fashioned and can be shamed into following the golden rule (treat others as you would want them to treat you).

 

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