US Position On OECD Offshore Crusade Is Becoming Clearer

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

27 April 2001

Amid another barrage of letters and speeches from prominent Republicans and libertarian activists urging the US administration to distance itself from the OECD's 'harmful tax competition', House Majority Leader Dick Armey yesterday insisted in a meeting with President Bush's Chief Economic Advisor Larry Lindsey and Assistant Secretary for Tax Policy Mark Weinburger that speedy action was needed.

"The OECD initiative would create a global network of tax police," Armey said in published remarks. "It's a full scale assault on tax competition and financial privacy. There is a right and a wrong way to fight tax evasion," Armey continued. "The wrong way is to destroy financial privacy in an effort to force greater compliance. The right way is to cut tax rates and reform the tax system. When tax rates are lower, there's less incentive to use illegal means to avoid taxes or hide money."

Last month, Armey sent a letter to Treasury Secretary Paul O'Neill urging him to act quickly to reverse the Clinton administration's support for the OECD initiative. Many low tax nations, facing a threat of financial protectionism as early as this July, are under tremendous pressure to comply with the OECD's demands.

In fact the administration's position is becoming clear, putting together public and private clues. In a closed-door meeting on 17th April with free-market activists U.S. Assistant Treasury Secretary Mark Weinberger said that the United States has no intention of joining the OECD in threatening sanctions against the 35 low-tax jurisdictions the multinational organization placed on its July 2000 blacklist.

However, Weinberger did tell participants that the United States would support the OECD in its goal of sharing information. The meeting included Dan Mitchell of the Center for Freedom and Prosperity - an organization created specifically to fight the OECD initiative - and two former chief economists for the U.S. Chamber of Commerce, Richard Rahn and Lawrence Hunter.

It's also known that Lawrence Lindsey - U.S. President George W. Bush's national economic adviser - who has long advocated financial privacy, recently advised opponents of the OECD campaign to push US Treasury Secretary Paul O'Neill to give a speech on behalf of tax competition.

O'Neill's position is not yet quite clear, but he will almost certainly support tax competition while not arguing against transparency or mutual assistance. Thus, the US position will probably be that KYC ('Know Your Customer') should be universal and that all countries should provide information about depositors or beneficial owners in response to specific requests.

What is less clear is the future for so-called discriminatory regimes (almost universal among offshore jurisdictions) in which non-resident companies and individuals benefit from lower tax rates than those who are onshore. The OECD is extracting commitments (conditional in some cases) from black-listed jurisdictions to abolish such distinctions - but most high-tax countries have discriminatory regimes themselves. Will the US be prepared to abandon Foreign Sales Corporations, 'S' Corporations and the like?

In Europe, Ireland and Madeira have agreed a level playing field for allcomers with a 12.5% corporation tax rate, and the Isle of Man and Cyprus are headed in the same direction. This is the trend which the US can probably halt in its tracks with one speech from Paul O'Neill. Will he make it?

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