 |
|
|
|
|
||
 |
||||||
|
|
||||||
|
|
||||||
 |
||||||
|
|
|
|
|
|
|
|
 |
|||||||
Apr. 16, 2001 News Analysis -- It's the Bank Secrecy, Stupid By Lee A. Sheppard -- lees@tax.org Multiple choice, readers. The Organization for Economic Cooperation and Development (OECD) is: (a) a
multilateral organization dedicated to the economic betterment of its members and the promotion of world trade; The correct answer is (b),
a European talk shop. If you answered (a), you may be sufficiently nave to be eligible for a place on New York City Mayor Giuliani's new indecency panel. If you answered (c), you are probably a Republican members of
Congress. And you have probably signed your name to a letter opposing U.S. participation in the OECD's campaign against tax havens, as a boatload of no-name legislators have done
recently. What appears to be a groundswell of legislative opposition is the result of a sophisticated lobbying effort by the Center for Freedom and Prosperity, the lobbying arm of the Freedom and Prosperity Foundation,
a newly formed tax-exempt organization primarily dedicated to opposing the OECD tax haven project. (The letters are collected on the foundation's Web site, www.freedomandprosperity.org.)
Though they are differently worded, the letters all say the same thing: Those chain-smoking continental bureaucrats want to force every country to raise its rates to the high level of those in
Western Europe, an effort that interferes with the sovereignty and economic growth of former colonies. And their ultimate aim is to force the United States, which is a tax haven, relatively speaking, to raise its rates.
Therefore, it is not in American interests to participate in this tax haven project. The letters rightly point out that U.S. income tax rate reductions in the 1980s forced some European competitors to lower their rates.
But they also assert that the OECD effort would hinder further tax reduction by Congress. Some legislators you have heard of have signed these letters also. Most notable among them is
the notoriously antitax House Majority Leader Richard K. Armey, R-Texas, who recently asked Treasury Secretary Paul H. O'Neill to withdraw from the OECD initiative. "It is my understanding that career personnel are
urging you to support the Clinton Administration viewpoint on the grounds that the OECD initiative is needed to reduce tax evasion. This is a red herring. A global network of tax police is the wrong approach,"
Armey wrote. Armey went on to state his belief that a territorial system -- which no country really has -- would eliminate the incentive for tax evasion. (See 2001 TNT 54-27
/taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/0e49e4b6d941b3e785256a150 00ee18b?OpenDocument </taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/0e49e4b6d941b3e785256a15 000ee18b?OpenDocument>
/taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/0e49e4b6d941b3e785256a150 00ee18b?OpenDocument </taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/0e49e4b6d941b3e785256a15 000ee18b?OpenDocument> .)
Purple prose, to be sure, but missing the point completely. The OECD nowhere suggested that there be global tax police. Armey may have been more accurate when, in the same letter, he accused the
OECD of forming a rich countries' tax cartel to impede the flow of global capital (at least to impede its flow to tax havens). Armey, in a September 2000 letter to the previous Treasury
secretary, argued that the United States should strive to promote tax competition, but in that letter he recognized that ending bank secrecy was a goal of the OECD effort. (2000 TNT 177-10
/taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/0b68bede7901bd1c852569580 007cd6c?OpenDocument </taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/0b68bede7901bd1c85256958 0007cd6c?OpenDocument>
/taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/0b68bede7901bd1c852569580 007cd6c?OpenDocument </taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/0b68bede7901bd1c85256958 0007cd6c?OpenDocument> .)
In that letter, however, he argued that the OECD effort would impede congressional efforts to further lower U.S. taxes. "American citizens would not respond well if other countries tried to
dictate our tax laws, and it hardly seems right for us to participate in a campaign to force other nations to change their tax laws," he wrote. Among the more imaginative letters on the OECD tax haven project
was that of 26 Democratic members of the Congressional Black Caucus, including ranking Ways and Means Committee member Charles B. Rangel, D-N.Y. (Who among the Caribbean's many economically deprived citizens has ever
benefited from financial secrecy or laissez-faire government?) The letter argued that policies that attract capital into developing countries provide jobs, which provide tax revenues for social spending. That the
capital in question might be flight capital in the form of bank deposits, rather than long-term direct investment in plant and equipment, went unmentioned. (2001 TNT 59- 5
/taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/2962a75caea1537d85256a1c0 00ae6c1?OpenDocument </taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/2962a75caea1537d85256a1c 000ae6c1?OpenDocument>
/taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/2962a75caea1537d85256a1c0 00ae6c1?OpenDocument </taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/2962a75caea1537d85256a1c 000ae6c1?OpenDocument> .)
The Black Caucus members appeared to be primarily concerned with the harm that the OECD's proposed sanctions might cause to the blacklisted Caribbean countries, rather than a defense of the
practices that prompted those sanctions. Rangel, in a Bloomberg news service interview, argued that what got those countries into trouble were their attempts to wean themselves from dependence on agriculture. So before
the rich countries punish them for adopting policies to attract capital, they should make sure that alternative means of income production are in place. (Bloomberg, Apr. 3, 2001.) Numbered Accounts
Maybe it was the title of the OECD's 1998 report, "Harmful Tax Competition: An Emerging Global Issue," that is the problem. Would the legislators quibble as much with a report entitled
"Destructive Bank Secrecy"? Responding to a January 2001 letter from Rep. Sam Johnson, R- Texas, OECD Secretary General Donald J. Johnston described the OECD initiative
thus: The OECD initiative is narrowly targeted to special tax regimes that abet the evasion or abusive avoidance of tax in other countries. Regimes are targeted only if they fail
to meet one of three general standards unrelated to rate of taxation -- transparency, effective exchange of information, or non- discrimination in favour of non-resident investors or investment. These standards were
established to identify regimes whose principal effect is to frustrate the laws of other countries. Further, the scope of the initiative is limited to income from financial or other mobile service activities.
(2001 WTD 41-21 /taxbase/tni3.nsf/86255f190073234e85255b580068db3a/e4a70de931480abb85256a020 0168d35?OpenDocument
</taxbase/tni3.nsf/86255f190073234e85255b580068db3a/e4a70de931480abb85256a02 00168d35?OpenDocument> /taxbase/tni3.nsf/86255f190073234e85255b580068db3a/e4a70de931480abb85256a020 0168d35?OpenDocument
</taxbase/tni3.nsf/86255f190073234e85255b580068db3a/e4a70de931480abb85256a02 00168d35?OpenDocument> .) Appended to Johnston's letter was a stridently worded memo to the head of the U.S.
delegation to the OECD, Amy Bondurant, complaining about the widespread misunderstanding of the OECD project. "It has nothing to do with insisting that a jurisdiction use a particular tax structure or rate. . . .
What the project is aimed at is preventing non-compliance with the tax laws, or to put it in the vernacular, it is directed against 'tax cheats,'" Johnston wrote. That is a message that has not gotten
through. The OECD's 1998 report on harmful tax competition, which preceded its 2000 blacklist of tax havens, explicitly states that a country's tax rates are its own business.
(The 1998 report can be obtained from www.oecdwash.org. For the 2000 blacklist, see 2000 WTD 124-11 /taxbase/tni3.nsf/86255f190073234e85255b580068db3a/857dd990e1b1cb218525690b0
00a0b9f?OpenDocument </taxbase/tni3.nsf/86255f190073234e85255b580068db3a/857dd990e1b1cb218525690b 000a0b9f?OpenDocument> /taxbase/tni3.nsf/86255f190073234e85255b580068db3a/857dd990e1b1cb218525690b0
00a0b9f?OpenDocument </taxbase/tni3.nsf/86255f190073234e85255b580068db3a/857dd990e1b1cb218525690b 000a0b9f?OpenDocument> .) The report states: The Committee recognizes that
there are no particular reasons why any two countries should have the same level and structure of taxation. Although differences in tax levels and structures may have implications for other countries, these are
essentially political decisions for national governments. Depending on the decisions taken, levels of tax may be high or low relative to other states and the composition of the tax burden may vary. (Paragraph 26.)
Indeed, "tax competition" is something of a misnomer for the 1998 report. The report explicitly states that it does not address the prototypical situation of tax competition, when one
country just has a lower tax rate than the other. (Paragraph 40.) Nor does the report advocate a minimum level of tax. It states: "It is not intended to explicitly or implicitly suggest that there is some general
minimum effective rate of tax to be imposed on income below which a country would be considered to be engaging in harmful tax competition." (Paragraph 41.) Therefore, the report
has nothing to do with whether the United States has lower rates than, say, Germany -- which is the question so many legislators have alluded to. The report is concerned with what it calls "poaching" -- a
country tailoring its tax laws to facilitate avoidance of another country's tax laws. (Paragraph 29.) The report defines tax havens as countries "that offer themselves as places to be used by non-residents to
escape tax in their country of residence." (Paragraphs 42, 46.) So, according to the OECD report, a tax haven is not just a country with no or nominal taxation, but one that:
offers itself as a place to be used by non-residents to escape tax in their country of residence; refuses, based on laws or practices, to exchange information with residence country governments about those nonresidents;
does not require substantial activity for a transaction to be sited there; and has a lack of transparency in the operation of its laws. (Paragraph 52.) Lack of transparency means that
the tax administrator cannot subpoena bank records. Lack of transparency and lack of information exchange are troublesome because they also facilitate money laundering. Some havens, the report notes, have agreed to
exchange information when the question is criminal activity, including criminal tax fraud, but not when the problem is civil tax evasion. (Paragraph 53.) Not that the drafters of the
OECD report are wild about the low- tax jurisdictions, including OECD members, that they refer to as maintaining "potentially harmful preferential tax regimes." Those are tax schemes, available only to foreign
investors, that are ring- fenced from the rest of the domestic economy. "Since the regime's 'ring fencing' effectively protects the sponsoring country from the harmful effects of its own incentive regime, that
regime will have an adverse impact only on foreign tax bases," the report notes. (Paragraph 62.) If the country's citizens are not excluded from the ring-fenced regime, those who
operate within it may be prohibited from interacting with the domestic economy, as with export zones. (American FSCs fall into that category, as the OECD's follow-up report confirmed.)
Like tax haven regimes, the ring-fenced schemes are accompanied by a lack of transparency and a lack of information exchange about the taxpayers who use them. In this case, lack of transparency means that the foreign
investors negotiate their tax bills up front. Of course, large companies negotiate their tax bills in OECD member countries, but that negotiation usually takes place after the income has been earned, not before.
American prefiling agreements, which did not exist when the report was drafted, would seem to fall into the category of nontransparent practices. Lack of transparency may also mean a
deliberate failure to enforce tax laws, as opposed to a negligent failure to do so, as in Italy. (Paragraph 63.) Tax sparing is an egregious example of that problem. (Paragraph 74.) But
lack of transparency can also mean laws that artificially narrow the tax base beyond what, say, a legitimate inflation adjustment would call for. (Paragraph 69.) The OECD -- the world's biggest defender of arm's-length
transfer pricing, due to past American bullying -- argues that failure to adhere strictly to arm's- length principles is an unjustifiable narrowing of the tax base. The United States permits cost-plus transfer pricing,
which, according to the OECD, deviates from arm's-length principles. The United States also permits taxpayers to negotiate their transfer prices with the tax administrator. The OECD
appears to denounce advance pricing agreements (APAs), without specifically identifying them, as an uneven, nontransparent application of law. Those negotiated deals, the OECD complains, "enable certain taxpayers
to obtain benefits which are not applicable to other taxpayers." (Paragraph 71.) The OECD is not wrong in slagging U.S. transfer pricing practices, which have come in for heavy
criticism in this very publication, not to mention lawsuits from other publications, principally for the nontransparency of the APA program. But there is no indication in those Republican legislators' letters that the
OECD wants to set American multinationals back competitively by making them use arm's- length transfer prices. Indeed, one wonders whether the drafters of the letters, with their fixation on tax rates, read the OECD
report at all. Bank secrecy is the big question, though the report does not spill a lot of ink on it. The report states: Lack of access to
information, whether because of bank secrecy, anonymous debt instruments or bearer shares, may constitute one of the most harmful characteristics of a regime. The availability of protection from enquiries by tax
authorities is one of the biggest attractions of many harmful regimes. (Paragraph 75) In its follow-up report, issued in July 2000, the OECD blacklisted 35 nonmember countries that it
identified as tax havens. (OECD's report "Toward Global Tax Cooperation." 2000 WTD 124- 11 /taxbase/tni3.nsf/86255f190073234e85255b580068db3a/857dd990e1b1cb218525690b0
00a0b9f?OpenDocument </taxbase/tni3.nsf/86255f190073234e85255b580068db3a/857dd990e1b1cb218525690b 000a0b9f?OpenDocument> /taxbase/tni3.nsf/86255f190073234e85255b580068db3a/857dd990e1b1cb218525690b0
00a0b9f?OpenDocument </taxbase/tni3.nsf/86255f190073234e85255b580068db3a/857dd990e1b1cb218525690b 000a0b9f?OpenDocument> .) So as not to seem hypocritical, the report also
identified 47 potentially harmful preferential regimes maintained by member countries. Most of those were location-based preferences for financial intermediaries or export activities, including FSCs. The OECD also
identified preferences for location of headquarters and holding companies. U.S. participation in the OECD harmful tax competition initiative has been aimed at bank secrecy and tax enforcement information exchange,
not relative tax rates per se. In its final budget request, the Clinton administration proposed to implement the OECD tax haven initiative by requiring the reporting of all payments to entities (including disregarded
and passthrough entities) located in countries on the blacklist and denying foreign tax credits for taxes paid to blacklisted countries. (Income earned in those countries would go into a separate foreign tax credit
basket.) A country that had been named to the blacklist could right itself by waiving confidentiality of tax information or entering into an agreement to exchange tax information with the United States. That is, no tax
structural change would be required to get off the blacklist. The United States ultimately would not care what the country's tax regime looked like as long as it cooperated in U.S. tax enforcement.
(2000 TNT 30-3 /taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/28d10ef317ba08cb852568830 00f6d7d?OpenDocument </taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/28d10ef317ba08cb85256883
000f6d7d?OpenDocument> /taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/28d10ef317ba08cb852568830 00f6d7d?OpenDocument </taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/28d10ef317ba08cb85256883
000f6d7d?OpenDocument> .) Black Helicopters If the OECD is so ineffectual, why this enormous effort to oppose the tax haven initiative? Andrew
Quinlan, president of the Center for Freedom and Prosperity, had previously remarked that OECD is not a government and has no ability to enforce sanctions. (2000 WTD 234-2
/taxbase/tni3.nsf/86255f190073234e85255b580068db3a/a7f53d663a1203cf852569ac0 00e3941?OpenDocument </taxbase/tni3.nsf/86255f190073234e85255b580068db3a/a7f53d663a1203cf852569ac 000e3941?OpenDocument>
/taxbase/tni3.nsf/86255f190073234e85255b580068db3a/a7f53d663a1203cf852569ac0 00e3941?OpenDocument </taxbase/tni3.nsf/86255f190073234e85255b580068db3a/a7f53d663a1203cf852569ac 000e3941?OpenDocument> .)
Is the OECD impotent? "Any group that can convince 30 countries to do something has power," said Quinlan, his organization's only lobbyist. But withdrawal of American
participation would end the OECD tax haven initiative. "We want to pull U.S. support from this cartel, this initiative, so it will fall apart," Quinlan told Tax Notes, noting that no OECD member country has
passed any law that would implement sanctions on blacklisted tax havens. That is, Quinlan sees the OECD effort as a bureaucratic initiative being foisted on legislators whom he hopes
have better judgment than to implement it. Asked where the Center for Freedom and Prosperity gets its money, he replied that it comes mostly from individuals around the world. No governments have donated, though Quinlan
regularly meets with blacklisted governments to encourage noncompliance with the OECD initiative. Economist Dan Mitchell of the Heritage Foundation, who also has a title at the Center
for Freedom and Prosperity and is the OECD's most outspoken opponent, has argued that the OECD's ultimate aim is to cause the United States to raise its comparatively low tax rates. Why would the OECD come after the
United States? "We're the biggest tax haven in the world, we're the grand prize," Mitchell told Tax Notes. Asked whether the OECD has a problem with U.S. rates being lower than, say, Germany's, Mitchell
admitted that it does not. Mitchell and others have called the United States a tax haven. Last December, he memorably said, "We have everything the OECD says they don't like about
the Cayman Islands." (2000 WTD 234-2 /taxbase/tni3.nsf/86255f190073234e85255b580068db3a/a7f53d663a1203cf852569ac0 00e3941?OpenDocument
</taxbase/tni3.nsf/86255f190073234e85255b580068db3a/a7f53d663a1203cf852569ac 000e3941?OpenDocument> /taxbase/tni3.nsf/86255f190073234e85255b580068db3a/a7f53d663a1203cf852569ac0 00e3941?OpenDocument
</taxbase/tni3.nsf/86255f190073234e85255b580068db3a/a7f53d663a1203cf852569ac 000e3941?OpenDocument> .) Where does the OECD say that the United States is a tax haven? "They
never say that the U.S. is a haven, but if you read their criteria, the U.S. fits," Mitchell replied, pointing to the threshold requirement that there be no or nominal taxation of certain forms of income. For what
types of income does the United States do that? Mitchell argued that U.S. law discriminates in favor of nonresident alien investors. Mitchell admits that he has not read the law, and
that his ideas about what the U.S. law says come from a speech by tax lawyer Marshall Langer. In his speech, Langer's basic point was that the OECD's identification of potentially harmful preferential tax regimes
maintained by member countries is woefully incomplete, hence the OECD is being hypocritical. He was struck by the failure to identify any regime in Britain or the United States, except for FSCs, as being a potentially
harmful preferential regime. (For the speech, see 2000 WTD 243-17 /taxbase/tni3.nsf/86255f190073234e85255b580068db3a/c533b5668cf2a5a1852569b70 0107ab6?OpenDocument
</taxbase/tni3.nsf/86255f190073234e85255b580068db3a/c533b5668cf2a5a1852569b7 00107ab6?OpenDocument> /taxbase/tni3.nsf/86255f190073234e85255b580068db3a/c533b5668cf2a5a1852569b70 0107ab6?OpenDocument
</taxbase/tni3.nsf/86255f190073234e85255b580068db3a/c533b5668cf2a5a1852569b7 00107ab6?OpenDocument> .) Langer pointed out some beneficial provisions that OECD members, including
the United States, offer to foreign investors, and argued that the OECD should not criticize anyone else's tax loopholes until its rich-country members have cleaned up their own act. Chief among the American loopholes
Langer identified is the treatment of U.S.- source bank deposit interest paid to nonresident aliens as not subject to withholding tax unless it is effectively connected with a U.S. trade or business. (Section
861(a)(1)(A).) Langer considers that, and the similar treatment of capital gains earned by nonresident aliens, to be a ring-fenced special regime of the type the OECD criticized. Langer
overstated the case. He also argued that the United States does not have effective information exchange, as defined by the OECD, because it has not, until now, provided information about nonresident aliens' interest and
capital gains to any treaty partner governments except Canada. (Reg. section 1.6049-8.) This situation has changed, so that the bank deposit interest provision would no longer fit the OECD definition of a potentially
harmful preferential regime. The recently promulgated section 6049 bank deposit information reporting regulations will enable the United States to collect information on interest paid to nonresident aliens so it can be
shared with treaty partner governments. (For the regulations, see 2001 TNT 14-130 /taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/8d60f0dfdb436420852569da0 013b3ab?OpenDocument
</taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/8d60f0dfdb436420852569da 0013b3ab?OpenDocument> /taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/8d60f0dfdb436420852569da0 013b3ab?OpenDocument
</taxbase/tnt3.nsf/86255f19006ce90385255b580068db3a/8d60f0dfdb436420852569da 0013b3ab?OpenDocument> .) Langer argues that the United States has no tax collection interest in gathering that information. (2001
WTD 47-12 /taxbase/tni3.nsf/86255f190073234e85255b580068db3a/d7ffeee2bfa5250085256a0a0 01253a6?OpenDocument </taxbase/tni3.nsf/86255f190073234e85255b580068db3a/d7ffeee2bfa5250085256a0a 001253a6?OpenDocument>
/taxbase/tni3.nsf/86255f190073234e85255b580068db3a/d7ffeee2bfa5250085256a0a0 01253a6?OpenDocument </taxbase/tni3.nsf/86255f190073234e85255b580068db3a/d7ffeee2bfa5250085256a0a 001253a6?OpenDocument> .)
Quinlan goes further, arguing that implementation of the regulations will lead to the creation of the "global tax police" that House Majority Leader Armey alluded to.
The government argues that reporting will make compliance with treaties easier by allowing transmission of information in bulk, instead of pursuant to a specific request, as has been the case.
The U.S. is generally among the most willing of all countries in providing information exchange. Langer also mentioned portfolio interest withholding tax repeal. (Sections 871(h),
881(c).) As a practical matter, before the 1984 repeal, withholding tax was not imposed, when the recipients were residents of treaty countries. Moreover, eligibility for the repeal depends on the recipient's country of
residence having adequate information exchange with the U.S. The Treasury can remove the benfit of repeal if there is inadequate information exchange. (Section 871(h).) Thus, the U.S. repeal of portfolio interest
withholding would not fit the OECD's criteria for a potentially harmful preferential regime. Mitchell is ultimately a believer in purely territorial taxation. He believes that the U.S.
practice of aggressively pursuing its citizens around the world is ultimately not in the best interests of the country because it will make foreign investors nervous. They will pull their money out, to the detriment of
the United States. Aren't they investing here primarily because the United States is the safest place to invest? Mitchell argues that there is a great deal of tax motivation for foreign investment in the United States
as well. Mitchell does not defend tax evasion, but he defends the right of citizens to avoid tax as a way to protect against bad tax policy - - a form of voting with one's feet, as it
were. Topping Mitchell's list of bad tax policy is the "double" taxation of investment earnings that is created by the investment of previously taxed wage income. It is an acceptable form of protest against
this bad policy, in Mitchell's view, for investors to go offshore to avoid U.S. tax on their investment earnings. It is not acceptable to avoid tax on wage income in the first instance. Mitchell's solutions for evasion
are interesting. Besides lower rates and exemption of investment income from tax, he suggests withholding on non-wage income. "The OECD wants to force the countries with low taxes and financial privacy to
become vassal tax collectors," Mitchell argued on the subject of tax evasion by OECD member country citizens. His emphasis here is on the word "force." It is acceptable for OECD members to ask tax havens
for cooperation in civil tax enforcement, and it is equally acceptable for them to refuse. It is not acceptable for OECD members to force sovereign governments to change their policies by means of economic
sanctions. Though bank secrecy barely gets a mention in Center for Freedom and Prosperity statements, Mitchell understands that ridding the world of bank secrecy is the OECD's ultimate
aim, and he opposes that goal. Does a person have a legitimate reason to have a numbered account? "Yes, if the government is oppressive," said Mitchell. Is the U.S. government
oppressive? "Our tax regime leaves a lot to be desired," said Mitchell. Bank secrecy -- which he characterized as "financial privacy" -- has the desirable effect of making it more difficult for
countries to maintain bad tax regimes, Mitchell argued. So bank secrecy ultimately works in the service of tax competition, which is desirable. If the OECD got its way, there would be less tax competition, in Mitchell's
view. What about the role of bank secrecy in facilitating money laundering? "Demagoguery," said Mitchell, noting that most criminal proceeds are both obtained and laundered
within OECD countries. Moreover, some tax havens do cooperate in criminal enforcement. Certainly countries have the right to compel other countries to cooperate in criminal enforcement, Mitchell noted, provided that the
crime is considered a crime by both countries. Tax Straddle The few peeps about the OECD initiative that have come out of the Bush administration have
not been forceful enough. The letters keep coming, and the Center of Freedom and Prosperity's campaign marches on. Indeed, some of the froth on conservative editorial pages makes one wonder whether mad cow disease has
not already reached the United States. The conservative National Review characterized the OECD initiative as a Franco-British plot, forgetting that those countries are U.S. allies. (The National Review, Apr. 2,
2001.) On February 22, Treasury Secretary O'Neill signed on to the G-7 Finance Ministers' communique in Palermo, Italy, reaffirming American support for the OECD tax haven initiative.
The full paragraph from that communique reads: 14. We reaffirm our support for the efforts of [the] OECD to address harmful tax practices. We encourage the OECD to continue its
efforts. We encourage the efforts of the OECD member countries to meet their commitments. We welcome the cooperative dialogue which has been established with countries and jurisdictions outside the OECD area. We welcome
the new commitments made by some jurisdictions to eliminate their harmful tax practices by the end of 2005. We encourage others to make early commitments, so that as few jurisdictions as possible are included in the
list of uncooperative tax havens which we look forward to examining at the Genova Summit. We encourage all OECD governments to consider offering, under the auspices of the OECD and other international organizations,
technical assistance to cooperating jurisdictions, if needed to comply with their commitments. At his February 17 press conference after the G7 meeting, Secretary O'Neill said:
We also reaffirmed our support for efforts to address harmful tax practices. While I indicated to my colleagues that certain aspects of these efforts are under review by the new
Administration, I support the priority placed on transparency and cooperation to facilitate effective tax information exchange. At the same time, it is critical to clarify that this project is not about dictating to any
country what should be the appropriate level of tax rates. Assistant Treasury Secretary Mark Weinberger emphasized that the U.S. does not support any requirement that any country raise its
tax rates either as a goal or as a byproduct of the OECD tax haven initiative. Europeans have been accused of having protectionist tax rate increases as their unstated agenda for the project. "Countries must be
free to pursue their own tax policies, including policies regarding tax systems and rates," said Weinberger. "We will work within the OECD and other relevant fora to ensure that all countries, including the
United States, are free to pursue low-tax or no-tax policies if they choose to do so." The Bush administration does support the use of the OECD tax haven project to encourage
cooperation between countries in tax enforcement. "Countries generally should not engage in practices that make it easier for other countries' claws to be broken or frustrated," said Weinberger. "With
respect to our tax laws, those practices might include bank secrecy rules or an unwillingness to exchange tax information with us that would permit taxpayers more readily to evade our laws," he said, noting that
U.S. treaties call for full information exchange, even when that means piercing bank secrecy. Indeed, the view within the administration seems to be that greater information sharing is
desirable per se, and bank secrecy is undesirable per se, without regard to the level of tax imposed by the country in question. That is, the tax-related criteria for blacklisting may have muddled an otherwise sound
OECD project to enhance tax enforcement by ridding the world of obstructive practices. The administration thus is re-evaluating the criteria the OECD used for blacklisting countries, questioning whether tax-related
criteria are relevant, but continues to support the principle of enhancing cooperation between countries in tax enforcement. The aim is not only to prevent American citizens from evading tax, but also to comply with
treaty obligations for information sharing. Well, if the U.S. can obtain enforcement cooperation in bilateral tax treaties, does it need to participate in the OECD project? "There
may be some value in coordinating our efforts with countries with similar concerns through multilateral fora like the OECD," said Weinberger. Will the U.S. drop out of the OECD initiative? Probably not, but the
U.S. does not need to make any decision until the blacklist becomes final and the time comes to enact sanctions, in June of 2001. Copyright -- Tax Notes
|
|||||||
 |
|||||||