US Treasury Secretary details criticism of OECD tax
project; small countries demand inclusion in setting
trenchant criticism yesterday by US Treasury Secretary
O'Neill of the way the OECD has run its so-called
"harmful" tax initiative, the International
Tax and Investment Organisation (ITIO) has renewed
its call for the OECD to involve small and developing
economies (SDEs) fully in developing international
standards of exchange of information and transparency.
The Paris-based OECD has recently revised its so-called
"harmful tax competition initiative" in
the light of some OECD countries' strong objections,
led by the US.
Giving evidence to a Senate committee yesterday, Mr
O'Neill explained the US's grave concerns with the
attitude of the Paris bureaucrats in pursuing their
tax project, which he suggested involved inequity,
a lack of clarity and an attack on sovereignty, and
of Mr O'Neill's statement, with quotations, are in
the Notes to Editors below.
Commenting on Mr O'Neill's statement, ITIO spokesperson
Ben Coleman said: "We are delighted that the
US has helped to introduce a sense of fair play into
the OECD's tax project.
OECD must now show good faith by inviting all countries
with an interest, including small states, to participate
in its Global Tax Forum on setting standards for exchange
of information. If not, the objectivity, quality and
viability of the process will remain compromised."
further information, please contact Ben Coleman in
London on Tel: +44 (0) 20 7526 3603, or Tel: +44 (0)
7958 616 444, or Email: email@example.com
1. SECRETARY O'NEILL'S STATEMENT TO THE SENATE
Appearing before the Permanent Subcommittee on Investigations
of the Senate Committee on Governmental Affairs on
18 July 2001, US Treasury Secretary O'Neill made a
statement containing numerous complaints about the
way the OECD had run its so-called "harmful"
tax initiative. In the paragraphs (i) to (iii) below,
we contrast the OECD's original position, Mr O'Neill's
comments and the position now.
Mr O'Neill's full statement can be found on the internet
officials had proposed imposing sanctions against
non-OECD countries at least two years before doing
so against similarly-situated OECD countries.
Mr O'Neill deplored this "inequity", saying,
"disparity of treatment would not have been fair".
Any sanctions will not now apply to non-OECD countries
any earlier than to OECD ones.
Unclear and an attack on sovereignty
officials had persisted in using "ring fencing"
as a criterion for defining a jurisdiction as "uncooperative"
(and thus open to sanctions). Small and developing
economies (SDEs) have long complained about this as
an attack on their sovereign tax systems.
Mr O'Neill called the OECD's approach "problematic",
noting that OECD officials had "struggled"
to articulate it and adding, "This lack of clarity
in definition and uneven application are particularly
troubling because the criterion potentially implies
fundamental tax and economic policy decisions of the
jurisdictions". Mr O'Neill also said he was "troubled
by the notion that any country, or group of countries,
should interfere in any other country's decisions
about how to structure its own tax system."
The ring fencing (or "no substantial activities")
criterion has now been dropped. The initiative's exclusive
focus is now on effective exchange of information
officials had refused to listen to requests from SDEs
engaged in good-faith discussions to extend the deadline
of 31 July.
Mr O'Neill called the OECD's attitude "counterproductive",
claiming it would have produced an "inappropriate
result". He said, "It would have been counterproductive
to so label jurisdictions as uncooperative merely
because the OECD and the jurisdictions were unable
to conclude their discussions by July 31st".
deadline has now been extended to 30 November 2001.
OTHER US POSITIONS
O'Neill made further statements of interest, as below.
US supported by other countries
is important to note that the United States was not
alone within the OECD in advocating these modifications,
and that agreement within the OECD would not have
been possible without the support of other countries."
OECD tax officials condemnatory and aggressive
two OECD reports [on which the tax project is based]
take a notably condemnatory tone with respect to the
issues addressed, and the advocacy of internationally
coordinated action against targeted countries represents
an approach that is more aggressive than is typical
for the OECD."
Spotlight on OECD members
haven jurisdictions will be able to observe whether
OECD member countries with significant financial centers
make the changes necessary to meet the standards that
the jurisdictions are being asked to meet. OECD member
countries should hold themselves to standards and
timelines at least as rigorous as those to which they
hold jurisdictions that are not part of the OECD."
Acceptable to use tax as an investment incentive
may have good reason to provide different levels of
taxation to income earned by nonresidents or to income
earned by residents from foreign activities, such
as to provide investment incentives or to improve
access to capital markets. If such policies are not
coupled with a lack of transparency or a refusal to
exchange information and otherwise do not interfere
with the enforcement by other countries of their tax
laws, they should not be targeted by the OECD initiative."
GLOBAL TAX FORUM
on exchange of information and transparency are being
discussed in the the OECD's Global Tax Forum. In principle,
this is open to all jurisdictions that show a genuine
interest in curbing harmful tax practices. In practice,
the OECD has excluded small and developing economies
with offshore centres from the Forum unless they first
enter into detailed commitments to the OECD process.
the OECD has encouraged over 55 other non-member countries,
such as Argentina and South Africa to participate
in the Forum, without first requiring similar commitments.
The ITIO believes this unfair approach compromises
the objectivity, quality and viability of the Forum.
INTERNATIONAL TAX AND INVESTMENT ORGANISATION
International Tax and Investment Organisation (ITIO)
was set up in March 2001 to help SDEs respond to global
tax and investment challenges. It explicitly considers
the development implications of these challenges.
ITIO currently comprises Anguilla, Bahamas, Barbados,
Belize, British Virgin Islands, Cayman Islands, Cook
Islands, Malaysia, St Kitts & Nevis, St Lucia,
Turks & Caicos and Vanuatu. The Commonwealth Secretariat,
Pacific Islands Forum Secretariat and CARICOM Secretariat
have observer status.
The ITIO grew out of the work of the OECD-Commonwealth
Joint Working Group on Harmful Tax Competition. The
experiences of the SDEs in this group convinced them
of the need for a new, inclusive organisation.
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