Please Tell Us What You Think, Mr O'Neill!

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

10 April 2001

Since the G7 meeting last month in Palermo, when US Treasury Secretary Paul O'Neill made remarks that could have been (and were) interpreted as negative towards the OECD's 'unfair tax competition' initiative, the world of offshore has waited with bated breath for Mr O'Neill to make the administration's position clear.

Everyone knows that the time-serving bureaucrats within the Treasury share an agenda with the OECD's tax police, and must be bending the Secretary's ear as far in the direction of fiscal correctitude as the assembled legions of congressmen and right-wing Washington lobbyists are bending it in the opposite direction of freedom of competition for island nations with little more than bananas and tourism to save them from financial enslavement to their ex-colonial masters.

The latest US publication to come out swinging in defence of the tax-competers is the National Review Online. Like many other publications and commentators, it sees the OECD as an instrument of the rich nations' attempt to protect their own tax revenues. 'As international institutions go,' says the National Review, 'the Organization for Economic Co-operation and Development (OECD) has been pretty harmless, and even today it has very little power. But it seems bent on confirming O'Sullivan's Law that all groups that are not explicitly right-wing become left-wing over time. It is using what power it has to create an embryonic global tax regime that threatens free trade, privacy, and sovereignty. Will Treasury secretary Paul O'Neill put a stop to it?'

There it is, that question again. 'Almost everyone in President Bush's economic team opposes the OECD proposal,' says the Review, 'but the career officials at Treasury whose job is to enforce tax law support it because they see the chance to nab a few American tax evaders. Which side wins will spell the fate of the entire enterprise: an international sanctions regime against the tax havens will not succeed — will not even be formed — without American participation.'

That is no more than the simple truth, as is also demonstrated by another strand of the international tax collection battle currently weaving its way through American and international polity. This is 'information-sharing', or the agreement between governments to share information about the income of each other's tax-payers.

The IRS has proposed that US banks should be required to make a return of interest paid to foreign residents - needless to say, the information could then be passed on to the foreign governments concerned. Such behaviour on the part of the US was requested by the EU as a result of the Feira agreement on information-sharing last December, which made made a consensus between major G7 nations a pre-requisite of EU agreement to instal information-sharing on their own territories.

Of course, the Congress has to agree with the IRS's proposal before it can become law, and the last Congress refused both money-laundering legislation and laws that would have dented banking secrecy. But that was for Americans, while this only hurts foreigners. Or does it? The real target of the IRS is in fact those Americans who hide money behind offshore corporate facades and then lend it back into the US banking system, and the IRS is simply hiding its goal of catching such offenders behind a supposedly 'virtuous' attack on international, 'foreign' tax cheats. Very clever, and fully in line with the OECD's campaign.

Back to Paul O'Neill. What will he do? He can kill the whole information-sharing, tax-cartel bandwaggon at a stroke, if he chooses and the administration supports him (which it probably does). On the other hand, he must be thinking that in a sharp downturn, and with major tax-cuts in place, every penny of revenue may be needed. He doesn't want to go down in history as the Republican Treasury Secretary who raised taxes!

Says the National Review: 'So the decision comes down to Treasury Secretary Paul O'Neill. He's been supportive of the right of countries to set their own tax rates without outside interference, but also of what he vaguely calls "effective tax information exchange." He can still weigh in against the OECD. It ought to be an easy call.'

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