NEWS AND ANALYSIS
‘Secretary Paulson knows that if he wants to move forward on tax reform, my door is open — in fact, he doesn’t even have to knock,’ said Rangel. ‘‘What has been missing from the debate thus far are tax reform proposals endorsed by this administration and a willingness to work across party lines to enact that reform,’’ Rangel said. ‘‘Secretary Paulson knows that if he wants to move forward on tax reform, my door is open — in fact, he doesn’t even have to knock.’’ (For a press release from Rangel, see Doc 2007-17491 or 2007 TNT 145-36.)
TAX NOTES, July 30, 2007
ECONOMIC ANALYSIS
Lessons From the Last War on Tax Havens By Martin A. Sullivan — martysullivan@comcast.net In a war waged primarily from 1998 through 2002, 35 tax havens — including some of the world’s smallest countries — beat back an attack on their offshore business led by the OECD, the protector of the collective economic interest of 30 of the world’s biggest countries. How did these pea-pod economies overcome the superpowers? In a nutshell: They kept the battle at a rhetorical level and then, with the support of like-minded third parties, developed verbal counterattacks to the OECD’s opening assaults. This is all described in a balanced and thoroughly researched study entitled Havens in a Storm: The Struggle for Global Tax Regulation (Cornell University Press, 2006, 211 pages). The author, J.C. Sharman, is an Australian political scientist with little prior knowledge of taxation, but he may have written one of the best books out there for tax experts trying to make sense of big countries’ policies toward tax havens.
Play by Play The story begins in May 1996 when the heads of state of G-7 nations meeting in Lyon, France, asked the OECD to develop measures to ‘‘counter the distorting effects of harmful tax competition.’’ The OECD talked it over for two years and in 1998 released ‘‘Harmful Tax Competition: An Emerging Global Issue.’’ All OECD member nations, except tax havens Luxembourg and Switzerland, approved the report. The landmark 1998 report listed characteristics of tax havens: low or zero tax rates, lack of tax information exchange with other countries (even if there is exchange for fraud and money laundering), a high degree of bank secrecy, and lack of real economic activity associated with the income generated. The OECD established a Forum on Harmful Tax Practices to compile a ‘‘blacklist’’ of tax havens. Blacklisted countries faced veiled threats of multilateral actions in the form of sanctions euphemized as ‘‘defensive measures.’’ The Forum on Harmful Tax Practices scrutinized 47 jurisdictions. Six were deemed not to meet the tax haven criteria. Six others — Bermuda, the Cayman Islands, Cyprus, Malta, Mauritius, and San Marino — made ‘‘advance commitments’’ to undertake specified reforms to avoid inclusion on the list. That left 35 jurisdictions on the OECD blacklist published in its June 2000 report, ‘‘Towards Global 327
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on the issue. Solomon said he expected Treasury would continue the discussion of territoriality and get into details such as what kind of income would be exempt and what would be considered foreign income. Michael J. Boskin of Stanford University suggested implementing a credit-method VAT of 10 percent to 14 percent, conforming book and tax income to address corporate tax shelter problems, imposing a 15 percent corporate rate, and broadening the base, although he said Treasury’s examples of provisions to eliminate were ‘‘not possible or realistic.’’ Speaking to reporters after the conference, Solomon and Robert Carroll, Treasury assistant secretary for tax analysis, said there is no deadline for Treasury’s study of competitiveness. ‘‘We have to sit down and really try to put together some of the thoughts from today. That’s really what our next step is. And then we have to figure out what we may do,’’ Solomon said. House Ways and Means Committee Chair Charles B. Rangel, D-N.Y., encouraged the administration to join him at the table to reform the tax code.