US RETREATING FROM OECD CRACKDOWN ON TAX HAVENS

Bloomberg News, 10 May 2001

By Ryan J. Donmoyer in Washington and Michael Bleby in London

The US is reversing the Clinton administration's support for a crackdown on global tax havens led by the Organization for Economic Cooperation and Development, Treasury Secretary Paul O'Neill said.

"In its current form, the project is too broad and is not in line with this administration's tax and economic priorities," O'Neill said in an article published in the Washington Times. The Treasury Department issued a statement that the article was written by O'Neill after the paper listed the author as Rob Nichols, the deputy assistant secretary for public affairs.

O'Neill's statement counters the position of former President Bill Clinton, who supported the OECD's effort to impose economic sanctions on about three dozen countries suspected of enabling wealthy citizens to evade taxes in their home countries.

"The United States does not support efforts to dictate to any country what its own tax rates or tax system should be, and will not participate in any initiative to harmonize world tax systems," O'Neill said. Instead, he called for building a "framework" to share "specific and limited information necessary for the prosecution of illegal activity."

Death Knell

O'Neill's comments mean the end of the OECD's efforts against tax havens, tax accountants said.

"It basically kills this initiative," said Bill Dodwell, a London-based tax partner at the Andersen accounting firm. "If the US isn't prepared to support it, I'm not sure any other countries will."

While O'Neill's statement welcomed moves to improve the flow of information between tax authorities, it's unlikely the US will entertain the initiative even if the OECD makes alterations, Dodwell said.

"They had to say something about exchange of information because it has been at the heart of their international tax policy for many years," he said. "The Bush administration has shown itself quite prepared to withdraw from international initiatives if it doesn't believe in them."

The OECD's reaction was muted. Bruno Gibert, a deputy director at the French economics ministry and co-chair of the organization's forum on harmful tax practices, said in a statement that forum members meeting in Paris "noted" O'Neill's concerns.

"Member countries are engaged in a discussion of how to respond," he said.

Rates Not a Target

Frits Bolkestein, the European Union's commissioner for internal markets and taxation, said the OECD would press on with the initiative.

"We're not going to sit with our hands crossed and do nothing about these fortunes being stashed away in countries where nobody can look at them," he said.

The suggestion that the OECD was concerned about influencing or coordinating rates of taxation is "sheer nonsense," he said.

"The OECD is not concerned with tax levels, it merely wants to aid the movement to a worldwide system where people pay the tax due on their savings: Nothing more and nothing less," he said in an interview.

Heather Self, a Manchester, northern England-based international tax partner at Ernst & Young, agreed.

"There are a lot of other members of the OECD, including the U.K., who would not want to see tax rates harmonized," she said.

The Bush administration has been under pressure from lawmakers representing a range of ideologies from anti-tax Republicans such as House Majority Leader Dick Armey of Texas to members of the Congressional Black Caucus such as House Ways and Means Committee senior Democrat Charles Rangel of New York.

Caribbean Concerns

The Black Caucus fears economic sanctions will hurt several Caribbean countries on a June 2000 blacklist of 35 countries whose tax systems met the "technical criteria for being tax havens." They include Aruba, the Bahamas, Barbados, Belize, Grenada, Montserrat as well as the US Virgin Islands.

The pressure largely has been coordinated by groups such as the Heritage Foundation, a research institution, and the Center for Freedom and Prosperity, a lobbying group, to reverse Clinton's support for the crackdown.

Andrew Quinlan, the center's director, claimed victory today. "Everything we has asked for he has come out and said," Quinlan said.

Representatives of some tax haven countries meeting in Kent, England, also welcomed the US statement.

"We're pleased," said Lynette Eastmond, of the International Tax and Investment Organisation, a group set up in March this year to represent small nations on tax and investment issues. "The position we see articulated is essentially one that we've been saying all along."

Offshore tax centers say the OECD demands greater concessions from then than from the OECD's own members, she said.

"They are concerned with due process, a level playing field and an end to double standards," she said.

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