White House Again Opposes EU Information-Sharing Proposals

by Mike Godfrey, Tax-News.com, Washington

26 September 2002

The battle against wholesale tax information-sharing between nations took a turn in the right direction this week, when Glenn Hubbard, chairman of the White House Council of Economic Advisers, told a meeting of conservative political groups that the administration would not support the European Union's information-sharing directive.

The EU's proposal, agreed at a summit in Feira nearly two years ago, set the end of 2002 as a deadline for information-exchange rules to be adopted by all 15 member states, plus key outside jurisdictions including the US, Switzerland and Britain's offshore dependencies such as Jersey and the Isle of Man. The dependencies have caved in under pressure from the UK Government, but Switzerland has held out in a long-running and acrimonious squabble with Brussels.

Earlier in the month Taxation Commissioner, Frits Bolkestein warned that restrictions on investments by Swiss citizens in the European Union could be imposed if the jurisdiction failed to comply with the EU's demands over information exchange, but, apart from eliciting outrage from the Swiss, this prompted Luxembourg to say that it was opposed to the imposition of sanctions against Switzerland, making the attitude of the US crucial to the future of the proposals.

"The Commission want to get us to sign on in order to badger the Swiss into signing, and get the Swiss to sign on to badger us," says Mr Hubbard. The US Treasury Department, focus for pro-exchange views, is non-committal on the issue in public, but its general attitude is clear enough from proposed new regulations it issued a few weeks ago under which interest on bank deposits would be reported to the IRS for nonresident alien individuals who are residents of certain specified countries, including most EU member states.

The Treasury is no doubt hoping that Congressional elections will shift the legislature sufficiently far to the left that there will be support for the EU's proposals; but if the forces arrayed against information-sharing are as strong as Mr Hubbard's statement suggests, the President may choose to use his veto on the issue, something that would mightily upset his buddy Tony Blair.

In its current shape, there is no chance that information-sharing proposals could pass the House. Bill Thomas, Chairman of the House Ways and Means Committee, made this clear in a letter he wrote to Paul O'Neill in August on the subject of the Treasury's domestic information-sharing regulation.

Wrote Mr Thomas: "As I expressed on the floor of the House of Representatives on July 25, 2001, I am concerned that the proposed regulation could cause significant flight of capital out of the United States. Furthermore, I am concerned that this significant change in tax policy would hinder our efforts to reform the tax code to promote greater efficiency and growth. Finally, there are questions as to whether this proposed regulation contradicts Congressional intent."

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