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Task Force Strategy Memo

To: Public Policy Makers from Low-Tax Countries

From: Center for Freedom and Prosperity

Date: February 24, 2001

Re: Paris Task Force Meeting

[1] The OECD continues to lose ground in their battle to impose unfair tax rules on the rest of the world. More U.S. lawmakers have denounced the organization's sloppy analysis and flawed theoretical framework. Perhaps most importantly, the new administration in America has sent clear signals that it is reviewing the OECD's attack on territorial tax systems and low-tax countries.

[2] While supporters of competition, privacy, and sovereignty continue to win battles, this does not mean the war is over. The career bureaucrats at the US Treasury Department and Internal Revenue Service are doing everything they can to help the OECD. They are trying to manipulate President Bush's political appointees by characterizing the issue as one of money laundering and tax evasion. Indeed, we would not be surprised if one or more of them show up in Paris and proclaim that the US still supports the OECD's anti- competition initiative.

[3] Fortunately, bureaucrats will not make the final decision, and there is a growing awareness that this is really a debate between supporters of territorial taxation and worldwide taxation - and that money laundering has nothing to do with tax competition. Furthermore, American policy makers increasingly recognize that the OECD campaign undermines efforts to reform the tax code in America (proposals like the flat tax would institute a territorial tax regime). As such, there is every reason to believe we will pick up additional converts in our effort to protect international commerce from an OECD- instigated tax cartel.

[4] As low-tax countries prepare for the March 1-2 Task Force meeting in Paris, we recommend that they focus on four points:

1. Hold the moral high ground - The OECD is seeking to rewrite rules of international commerce and taxation for the benefit of their tax collectors, yet they piously proclaim that they are trying to promote "best practices" and fight illegal activities. Do not let this charade succeed. Expose their real agenda, which is to criminalize territorial tax regimes and thwart competitive tax policy. Point out that the process is hypocritical, especially the fact that the OECD is attempting to dictate tax policy for other nations, but did not "blacklist" several of its own member nations that clearly satisfy the "tax haven" criteria. And highlight the fact that they are seeking to export their oppressive tax systems, setting up an "OPEC for politicians" to protect high-tax nations from competition.

2. Do not be intimidated by petulant brinkmanship - There are widespread rumors that the OECD wants to suspend the Task Force. Let them. The OECD has no intention of following through on the commitments they made in Barbados for a truly consultative process. Indeed, as was discussed in the pre-London strategy memo, the OECD deliberately misinterpreted the purpose of the Task Force before the ink was dry. As such, nothing is lost if the OECD engages in a collective temper tantrum. Low-tax countries should not make bad tax policy decisions just to keep the OECD from walking out on the process. Indeed, a walk-out would demonstrate to a wider audience that the OECD's idea of dialogue is to act like colonial masters, telling other jurisdictions to jump, and then waiting for them to respond, "How high?

3. If they play dirty, fight back - From the start of this process, the OECD has been smearing low-tax countries. They openly imply that nations on the blacklist are too backwards to have well-functioning financial services industries, and they explicitly accuse low-tax nations of being refuges for money- laundering and tax evasion. But at no point do they acknowledge that more money is laundered in the U.S. and U.K. in one day that in all the so-called tax havens in one year. The OECD also conveniently avoids any discussion of whether countries should have the right to impose their taxes on income earned in other nations (and they certainly do not address the issue of whether other nations should be compelled to act as vassal tax collectors). Given the OECD's refusal to engage in an honest debate, persecuted jurisdictions should fight back. Ask about the OECD's shoddy, non-transparent internal finances. Ask whether the preponderance of non-white nations on the blacklist indicates conscious or subconscious racism. Ask why OECD bureaucrats receive tax-free salaries. The time has come to put the OECD on the defensive by raising very legitimate

4. Remember that time is on your side - Many low-tax countries are worried that the OECD ultimately will prevail. This is a legitimate concern, but it is not a reason to capitulate any time soon. In the best case scenario, the work of the Center - along with help from a growing list of allies - will convince the new Administration that the OECD is pursing a policy that is against America's national interests. If that happens, the OECD's house of cards will come tumbling down and surrendering will have been a mistake. But what about the worst case scenario? What if the bureaucrats in the U.S. maneuver the political people into making the wrong decision? This probably will not happen, but there will be plenty of time to capitulate before the July deadline if things go the wrong way. In summary, nothing is gained by acquiescing before the Bush Administration makes a final decision on this issue.

[5] The OECD has been put on the defensive. They are using conciliatory rhetoric about the right of all countries to set their own tax rates, but this is merely an effort to draw attention away from their real agenda - which is unlimited information exchange so high-tax nations can collect taxes on income earned in low-tax nations. If successful, this would effectively destroy tax competition since taxpayers in a nation with oppressive taxation would still be subject to that burden even if they shifted their economic activity to a jurisdiction with lower tax rates.

[6] The OECD initiative is a frontal assault on the free movement of goods and services. This is why worldwide tax regimes are fundamentally wrong. In addition to being bad tax policy and anti- competitive, they inevitably cause conflicts between nations and necessitate the loss of privacy if they are to be enforced. Nations should be free to have high tax burdens or low tax burdens, but they should not be free to impose their tax systems on the income earned outside their borders.

Center for Freedom and Prosperity's
Paris Task Force Strategy Memo
February 24, 2001

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