By Cliff Montgomery – Mar. 30th, 2010
The Congressional Research Service (CRS) earlier this month released a study which discussed a major new international initiative against tax havens.
The initiative has been created by the Organization for Economic Cooperation and Development (OECD).
The CRS report gently admits that the current problem of tax havens is an immediate result of globalization, even as it is quick to defend this economic structure that for the last several decades has dominated our well- being (or lack of it).
Regardless, the study correctly points out that a leading aspect of globalization has been the creation of national tax advantages which are intended to move jobs–usually better-paying, unionized jobs–overseas.
It appears to tacitly acknowledge that OECD countries like the U.S. now need incentives to create such better-paying jobs in their own nations.
The American Spark below prints major parts of the CRS report.
“The Organization for Economic Cooperation and Development (OECD) is an inter-governmental economic organization in which the 30 member countries discuss, develop and analyze economic and social policy.”
“The member countries include Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, The Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, and the United States.”
“The OECD is a strong proponent of the view that increasing world economic growth and welfare is best supported by a free and open flow of goods, services, and capital.
“As a result, it views its own role in this process as that of a leading proponent of the benefits of globalization and as a force for developing institutions and regulatory structures that can make these benefits available to the OECD members and to developing countries.
“International flows of capital and goods and services around the world, a phenomenon referred to as globalization, have grown dramatically over the past two decades and are producing significant challenges for the OECD members, including the United States. International flows in dollars, for instance, now total over $1.9 trillion per day, or nearly as much as the total annual amount of U.S. exports and imports of goods and services.
“One part of these flows is foreign direct investment, or investment in businesses and real estate. The United States is the largest recipient of foreign direct investment and is the largest overseas investor in the world, owning over $2.1 trillion in direct investment abroad, or almost twice as much abroad as British investors, the next most active overseas investors. These investments generate profits for U.S. firms, which pay taxes on those profits.
“In some cases, firms develop elaborate strategies to reduce their taxes, at times using the financial services offered by some foreign jurisdictions, sometimes referred to as tax havens, and some U.S. individuals engage foreign banks to hide their assets from being taxed.
“Policymakers in the United States and elsewhere have addressed the issue of ‘tax havens’ and the double taxation of businesses that operate internationally for nearly a century. Recently, however, tax havens have attracted increased attention from policymakers. […] Some policymakers are targeting tax havens as part of their efforts to increase government revenues during the current economic downturn and to improve the integrity of the financial system in the wake of the financial crisis.
“At the G-20 Summit meeting in London in April 2009, the G-20 leaders indicated that they were adopting measures to curtail tax havens and to target ‘non-cooperative jurisdictions.’ In particular, the Summit communiqué stated that the G-20 members ‘stand ready to take agreed action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over.’
“The G-20 leaders also indicated that they had agreed to support a group of measures, including:
- increased disclosure requirements on the part of taxpayers and financial institutions to report transactions involving non-cooperative jurisdictions
- withholding taxes in respect of a wide variety of payments
- denying deductions in respect of expense payments to payees resident in a non-cooperative jurisdiction
- reviewing tax treaty policy
- asking international institutions and regional development banks to review their investment policies, and
- giving extra weight to the principles of tax transparency and information exchange when designing bilateral aid programs.
“In addition, on May 4, 2009, President Obama announced a set of proposals to ‘crack down on illegal overseas tax evasion, close loopholes, and make it more profitable for companies to create jobs here in the United States.’
“The Administration’s proposal reportedly is intended to ensure that the U.S. tax code does not ‘stack the deck against job creation’ in the United States and that it reduces ‘the amount of taxes lost to tax havens.’ Within these two broad areas, the Administration proposed the following:
(1) Replacing Tax Advantages for Creating Jobs Overseas with Incentives to Create Them at .
- Reforming deferral rules to curb a tax advantage for investing and re-investing overseas.
- Closing foreign tax credit loopholes.
- Using savings to make permanent the tax credit for investing in research and experimentation at home.
(2) Getting Tough on Overseas Tax Havens.
- Eliminating loopholes for ‘disappearing’ offshore subsidiaries.
- Cracking down on the abuse of tax havens by individuals.
- Devoting new resources for IRS enforcement to help close the international tax gap.
“According to the OECD, standards on transparency and exchange of information developed by the OECD were endorsed by all of the key countries, including jurisdictions which had opposed exchanging bank information.”
