Staff writerThe 29 member nations of the Organization for Economic Cooperation and Development have agreed in principle on guidelines for eliminating “harmful” tax competition designed to attract more foreign capital, government sources said Friday.The guidelines call for the nations to roll back what are seen as harmful preferential tax schemes on “geographically mobile activities,” such as international financial and other service activities, by 2003, and also to refrain from introducing new schemes, the sources said.They are deeply concerned that excessive tax measures introduced to attract foreign capital is not only distorting the fair flow of trade and investment but also resulting in the loss of national tax revenues.The guidelines — which are expected to force many Japanese and foreign companies with global operations to review their business strategies — were agreed at a meeting of the OECD Committee on Fiscal Affairs in Paris on Tuesday and Wednesday, the sources said.While the scope is limited to geographically mobile activities, the OECD will study and address, in the future, the issue of excessive tax incentives designed to attract foreign investments in the manufacturing sector, the sources said.A report containing the guidelines will be submitted to an annual ministerial meeting of the OECD in Paris at the end of April for final approval. The OECD, often dubbed the “club of the richest,” has been working on the guidelines for almost two years.Some OECD members had insisted on removing harmful preferential tax schemes within two to three years while others had argued for a longer grace period of about seven years. This week’s decision to set the 2003 deadline is apparently a compromise between the two opposing camps.The guidelines also call for the elimination, by 2005, of any new measures taken by the member economies to cushion the impact of their tax-policy reviews on those who have vested interests, the sources said. Guideline negotiations began when the OECD ministers adopted a communique in May 1996 calling on the organization to “develop measures to counter the distorting impact of harmful tax competition on investment and financing decisions and the consequences for national tax bases, and report back in 1998.”The Special Sessions on Tax Competition, a newly created group within the OECD Committee on Fiscal Affairs is directly responsible for the guidelines.
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