Up Front
US Treasury Secretary,Paul O'Neill Attacks OECD
Paul H.O'Neill
The US Treasury has finally made a clearstatement of its opinions regarding the OECD's offshore 'harmfultax competition' initiative and it's not going to make happy readingin Paris.
Initially, the statement from Paul O'Neill,Treasury Secretary, was published in the name of Rob Nichols,who is the U.S. Treasury Department´s deputy assistant secretaryfor public affairs - it seemed surprising that a junior PR guyshould be making international policy and after some frantic phoningaround, the statement was correctly attributed. Under the attackingheading 'Confronting OECD´s notions on taxation' Mr O'Neillleaves no doubt that the US is against the OECD's programme inits current form.
The following is Mr. O'Neil's statement:
"Recently, I have had cause to re-evaluatethe United States´ participation in the Organization forEconomic Cooperation and Development working group that targets"harmful tax practices." Following up on the thoughtsI shared with my counterparts from members of the Group of Sevenmajor industrial countries at recent meetings, I want to makeclear what is important to the United States and what is not.
"Although the OECD has accomplishedmany great things over the years, I share many of the seriousconcerns that have been expressed recently about the directionof the OECD initiative. I am troubled by the underlying premisethat low tax rates are somehow suspect and by the notion thatany country, or group of countries, should interfere in any othercountry´s decision about how to structure its own tax system.
"I also am concerned about the potentiallyunfair treatment of some non-OECD countries. The United Statesdoes not support efforts to dictate to any country what its owntax rates or tax system should be and will not participate inany initiative to harmonize world tax systems. The United Statessimply has no interest in stifling the competition that forcesgovernments like businesses to create efficiencies.
'In fact, the administration is activelyworking to lower tax rates for all Americans. After reducing ourtax burden, we will turn our attention toward reforming our systemto make it simpler and more efficient. On these principles theUnitedStates remains firm.
'When I took my oath of office in January,I pledged faithfully to execute the laws of the United States.In its current form as established by Congress, the U.S. tax codegenerally taxes income on a worldwide basis. We have an obligationto enforce our tax laws as written because failing to do so underminesthe confidence of honest taxpaying Americans in the fairness ofour tax system. We cannot turn a blind eye toward tax cheatingin
any form.
"That means pursuing those who illegallyevade taxes by hiding income in offshore accounts. In today´sworld of instant information on the Internet, offshore bank accountsare no longer an obscure perk of the very rich. Just type in 'offshorebrokerage account' in any Internet search engine. The number ofsites offering easy, affordable, secret offshore brokerage accountsfor investing in U.S. stocks is astonishing.
"As one Internet site advertising offshorebrokerage accounts in Dominica boasts, 'U.S. stocks, bonds, options,currencies and mutual funds are frequently bought through offshorecompanies because they are not liable to U.S. capital-gains taxes.'Consider just how unfair this is to law-abiding U.S. investorswho invest in U.S. stocks and pay taxes. The tax-evading U.S.investor, investing in the very same U.S. stocks through a secretoffshore account, does not.
"Anyone who doubts that the U.S. needsinformation from offshore tax havens in order to prosecute taxevaders need look no further than the case of John Mathewson.Mr. Mathewson ran a bank in the Cayman Islands. When shut downin 1995, Mr. Mathewson had more than 1,000 customers and, accordingto Mr. Mathewson, 95 percent of his customers were U.S. citizens.With Mr. Mathewson´s cooperation, the IRS obtained tax evasionconvictions on and collected substantial back taxes from morethan 20 of Mr. Mathewson´s clients. These cases were madepossible because of Mr. Mathewson´s extraordinary cooperation.Without it and without any tax information exchange agreementwith the Cayman Islands this large-scale illegal tax evasion wouldhave gone unpunished.
"To enforce our tax laws, we must havea multipronged strategy. If the United States believes a particularU.S. taxpayer is illegally evading the U.S. tax laws through theuse of offshore entities or secret bank accounts, the United Statesmust make every effort on our own to obtain the necessary informationto enforce the U.S. tax laws. In addition, the United States hasnegotiated individual treaties or agreements with more than 60countries so it can obtain needed information in cases of taxevasion.
"Finally, in appropriate circumstances,organizations like the OECD can be used to build a framework forexchanging specific and limited information necessary for theprosecution of illegal activity. We do and will guard againstoverbroad information exchanges in which foreign governments seekinformation for improper purposes or without proper safeguards.We cannot tolerate those who cheat on their U.S. taxes by hidingbehind a cloak of secrecy".
The statement concluded: "Where weshare common goals, we will continue to work with our G7 partnersto achieve these goals. The work of this particular OECD initiative,however, must be refocused on the core element that is our commongoal: the need for countries to be able to obtain specific informationfrom other countries upon request in order to prevent the illegalevasion of their tax laws by the dishonest few. In its currentform, the project is too broad and it is not in line with thisadministration´s tax and economic priorities."