US pulls out of OECD tax controls

Attempts by the OECD to curb both harmful tax competition and the appeal of off-shore tax havens have taken a blow with the decision of the US to end its role in the initiative. A spokesman for the European Commission said it "very much regretted" the decision which may have an knock-on effect on the implementation of a hard won compromise on the EU savings directive. The latter will require member-states' tax authorities to exchange information with each other on non-resident savings accounts after five years if, and only if, member-states are satisfied with progress in getting similar agreements with other third countries ranging from Switzerland to the US and Liechstenstein.

The US decision was announced by the Treasury Secretary, Mr Paul O'Neill, who said that "the US does not support efforts to dictate to any country what its own tax rates or tax system should be, and will not participate in any initiative to harmonise world tax systems".

Mr O'Neill did say, however, that the US would continue to be engaged in a more limited way in efforts to curb illegal transactions, but US officials were quoted as saying the OECD initiative was dead.

The latter's defenders say the idea was not to harmonise taxes but to make it more difficult for tax cheats to avoid the legitimate demands of their tax authorities.

The OECD has identified 35 countries which it says provide insufficient transparency on non-resident accounts or give more favourable treatment to non-residents and 47 potentially harmful tax regimes in member countries.

When similar work was being carried out internally by the EU in the context of the Savings Directive, Ireland opposed any minimum tax rates, agreeing instead to setting a minimum agreed rate or providing fellow member-states' tax authorities with information on non-resident accounts.