OECD Agreement Given Cautious Welcome By US Lobbyists

by Mike Godfrey, Tax-News.com, New York

29 June 2001

While official confirmation of the deal struck at the OECD in Paris this week on its 'unfair tax competition' initiative was still awaited, further details emerged yesterday, confirming that offshore jurisdictions could be subject to economic sanctions starting in 2003 if they do not provide information to tax authorities in OECD countries seeking data in specific tax enquiries.They could not refuse a request for information on the ground that the alleged tax violation was not a crime under their own laws.

The OECD has also compromised on its desire to remove 'ring-fencing', in which governments allow foreign-owned companies to be taxed at minimal rates or not at all while local companies are taxed at higher rates. The US Treasury did not want to appear to be dictating tax rules to smaller countries. Under the agreement, a ring-fencing regime won't by itself make a country subject to sanctions, but it will be a criterion for being labeled by the OECD as a tax haven.

The agreement, reached by the OECD's Fiscal Affairs Committee, is "a compromise that allows everybody to save face," said an official familiar with the details.

The Center for Freedom and Prosperity, however, which has been prominent in the campaign to stir up US administration hostility towards the OECD initiative, is not convinced that the agreement gives offshore jurisdictions sufficient protection against oppressive behaviour by the OECD and its members.

Andrew Quinlan, president of the Center for Freedom and Prosperity issued the following statement:

"Thanks to U.S. leadership, the OECD has been forced to retreat. Deadlines have been pushed back. Threats of financial protectionism have been reduced. Indeed, the Paris-based bureaucracy has thrown in the towel on its tax harmonization agenda. Equally important, they have been forced to scale back their "information exchange" assault on financial privacy. That's the good news.

"The bad news is that the OECD is still demanding that other countries have an obligation to help enforce the oppressive tax laws of OECD member nations.

"The Center will be increasing its public education campaign in the coming months. Given all the developments in recent days, we will repel the OECD's fiscal imperialism. In the last 10 days alone, for instance, House Majority Whip Tom DeLay and two top House Committee chairmen, Rep. David Dreier of California and John Boehner of Ohio, have come out against the OECD's dangerous information exchange agenda. Leading grassroots groups like the Free Congress Foundation, Americans for Tax Reform and Citizens for a Sound Economy also have weighed in against the OECD's anti-privacy initiative.

"Tax competition, financial privacy and fiscal sovereignty should be celebrated, not persecuted."

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