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Bruce Zagaris, August 2001

For Immediate Release
August 9, 2001

P R E S S  R E L E A S E

Lawyer Calls for Bush Administration to
Issue Regs on Exchange of Tax Information

[PDF Version of Zagaris' Paper]

Washington, D.C. -- On August 9, 2001, Bruce Zagaris called for the Bush Administration to fulfill the pledges made in the first Bush Administration to issue regulations providing notice to taxpayers whose information is requested and an opportunity to object or otherwise participate in the request for information.

Mr.  Zagaris, a partner with the D.C. law firm of Berliner Corcoran & Rowe, called for the issuance of regulations during his presentation before the International Platform Association's Annual Convention in Washington, D.C. during a roundtable on tax competition, financial privacy and the EU, UN, and OECD tax agendas.

During his remarks Mr. Zagaris pointed out that in 1990 the U.S. Senate Committee on Foreign Relations recommended its approval of the Council of Europe/OECD Convention on Mutual Administrative Assistance in Tax Matters on the basis of its understanding that "the Administration intends to adopt an administrative procedure under which it will generally notify an affected taxpayer who is a U.S. citizen or resident of specific requests and spontaneous exchanges." 

According to Mr. Zagaris, the Bush Administration was able to mollify and overcome the concerns of the International Chamber of Commerce and other business concerns by promising to publish regulations, requiring the Treasury to give notice and an opportunity to object to tax requests for information. In addition, Treasury officials said they would consider applying such regulations to all requests for tax information exchanges. More than ten years later, according to Mr.  Zagaris taxpayers and business groups awaited eagerly the regulations.

The issue of tax information exchanges have gained importance since the OECD's harmful tax competition initiative has focused on the importance of such exchanges of information. For instance, on July 18, 2001, at a hearing of the U.S. Senate Permanent Investigative Subcommittee, U.S. Treasury Secretary Paul O'Neill promised the Subcommittee chair Carl Levin that within one year the U.S. Government will have concluded tax information exchange agreements with at least one half of the so called tax havens of the Organization for Economic Cooperation and Development (OECD) harmful tax competition initiative.

Mr.  Zagaris also called on the Administration and Congress to ensure that private persons have an equal opportunity to make use of Mutual Assistance in Criminal Matters Treaties (MLATs).  At present, the MLATs specify that only governments may utilize their provisions, thereby precluding defendants and third-parties, such as banks and financial institutions, from using them.

Mr.  Zagaris urged countries other than the U.S. to also give careful consideration to providing improved due process to tax information exchange and other international enforcement agreements.  Globalization requires keeping a watch for privacy and international human rights for all persons, especially in an era when international law recognizes individuals and entities other than just states as the proper subjects of international law.

Mr.  Zagaris explained that increasingly intergovernmental organizations, such as the OECD and FATF, have become self-selected rule-makers.  "Increasingly intergovernmental organizations are trying to expand their power by turning soft unofficial standards into hard laws. An example is the OECD Fiscal Affairs Committee's harmful tax practices initiative.  The OECD's Fiscal Affairs Committee (FAC) is composed of civil servants representing national fiscal and revenue authorities. Ministers in charge of fiscal affairs ultimately endorse its recommendations, but do not scrutinize it as a parliament could. The  process whereby the OECD FAC classified certain jurisdictions as tax havens occurred without consultation with national parliaments, political consultation or due process (i.e., in obtaining and assessing evidence and/or allowing the targeted countries to participate fully)." Mr.  Zagaris continued, explaining that  "(t)he  OECD HTC process illustrates the attempted creation of laws without the scrutiny to which national laws are subject, the absence of any means whereby the targeted countries can participate meaningfully in the application of the laws. In addition, the OECD HTC process is designed to apply sanctions to small non-signatory states without any right of appeal to a tribunal on findings of fact or interpretation."

The OECD HTC initiative and the FATF initiative against non-cooperative countries suffer from the problem of opaque adoption procedures. The initiatives do not have the transparency and democratic processes a legislature uses in enacting bills.  Only by opening the process and providing better access and opportunity to participate for private sector groups and governments affected will the initiatives of international organizations gain the legitimacy without which they are not sustainable among governments, business groups, taxpayers, and the public at large.

Mr.  Zagaris calls for more active participation by taxpayers, business groups, and all interested governments and parties in the process of international organizations and groups, such as the OECD and FATF. He expressed confidence that the Bush Administration, which has been sympathetic to the rights of the market, the needs of taxpayers and privacy, will do the right thing and promulgate the promised regulations for tax information exchange requests.



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