Tax

U.S., Allies Reach Deal on Tax Havens

Agreement reached for less aggressive approach for dealing with offshore tax havens.
CFO.com StaffJune 28, 2001

The U.S. and its economic allies will announce agreement Thursday on a less aggressive approach for dealing with offshore tax havens, reports the Wall Street Journal.

After the Bush administration attacked the international crackdown as a disguised attempt to boost global tax rates, the 30-nation Organization for Economic Cooperation and Development negotiated a compromise that gives secretive low-tax jurisdictions more leeway to operate, but opens them up to scrutiny by governments trying to crack down on tax evasion, says the newspaper.

“The OECD project doesn’t seek to dictate to any country what its tax rate should be or how its tax system should be structured,” the group said in an agreement expected to win final approval in Paris Thursday. “It seeks to encourage an environment in which free and fair tax competition can take place.”

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The OECD had originally planned to decide by July 31 which of the 32 countries and territories deemed to be tax havens have failed to cooperate with the three-year-old initiative; those put on the final blacklist would have faced unspecified sanctions, reports the Journal.

Now the tax havens — such as the Bahamas, Panama and Monaco — have until Nov. 30 to demonstrate their willingness to cooperate with the new dictates requiring them to reveal the terms of their tax policies and provide information when foreign tax authorities are investigating a concrete case of suspected tax evasion, says the Journal. The OECD won’t impose joint sanctions on uncooperative jurisdictions until April 2003 at the earliest.

And the group, giving in to U.S. demands, will no longer impose joint sanctions on tax havens simply for offering tax breaks to foreign companies and investors that aren’t available to locals, the paper explains. Two OECD members, Belgium and Portugal, abstained from an internal vote on the new approach this week because they felt that decision was too soft on tax havens. OECD members are required to abolish their own preferential tax policies by April 2003, the paper continues.

But countries that offer special breaks for foreigners will still be named on the OECD list of tax havens.

Upon assuming office, Treasury Secretary Paul O’Neill immediately began to question the OECD initiative, backed by congressional conservatives who favor lower tax rates everywhere and by African- American lawmakers worried about damaging the economies of Caribbean nations.

The compromise “represents significant progress towards the secretary’s goals of focusing on information exchange to prosecute tax cheats,” a Treasury spokeswoman told the Journal.