Dissension within the Paris-based Organisation for Economic Cooperation and Development (OECD) has thrown the organisation's initiative on harmful tax practices into chaos, with serious opposition and charges of bad faith coming from one of the OECD's very own committees.

In April, 1998, the OECD issued a report accusing low-tax jurisdictions such as Bermuda of harmful tax practices. Now the OECD's own Business and Industry Advisory Committee (BIAC) has made the most compelling argument against the entire concept of harmful tax competition. Whether the OECD will be swayed by its own committee remains to be seen.

In a statement issued two weeks ago, most of which could have been drafted by any of the serious offshore business centres, the BIAC has challenged its OECD masters, saying: "What attracts business to tax havens is more the expertise available there than the tax benefits.'' That argument has always been put forward by Bermuda and others. While the OECD has demonstrated its ignorance of the ways of international business by assuming that companies are formed offshore purely to save tax, the BIAC says that "multinational enterprises that use the environment offered by tax havens or countries with preferential tax regimes have not, in general, done so primarily for tax saving reasons, but because these locations have developed an expertise in servicing these activities''.

The Bermuda International Business Association says as much in all its promotional materials. It seems the only ones unaware of this fact are those members of the OECD who subscribed to the harmful tax report. OECD members Switzerland and Luxembourg withdrew their support from the inquiry. The BIAC has not been content with explaining what most in the well-regulated offshore centres will see as the obvious, but has gone on the attack against its OECD overlords.

The committee says that the multinational business community "views tax competition, generally, as a healthy phenomenon from the point of view of both government and business''.

The BIAC report states: "It is unwarranted taxation, rather than competition, that is stifling to economic and business development.'' OECD shoots itself in foot This view is diametrically opposed to the general view of the OECD that low tax rates will prompt a "race to the bottom'' in which tax-inefficient onshore jurisdictions will be forced to the wall by countries and territories with low tax rates.

There is no support whatsoever among the business community for the OECD's harmful tax competition views, which are largely seen as justification for a campaign to collect taxes from the offshore communities which OECD members have proven incapable of collecting from their own citizens. The OECD proposals have been described as a "green tax'', arising out of envy.

The BIAC report says that it is "well accepted that each country decides its own fiscal destiny. Each nation should establish its system according to its fiscal needs. Such a situation creates the environment wherein tax systems and tax levels vary from country to country, a reality we have to live with and which is not, per se, a bad thing.'' The tax burden, says the BIAC, is taken into account by businesses when they make their business decisions.

"In a world that espouses free cross-border trade and investment, multinationals are free to structure and operate their business activities in a manner that makes the most sense from a business point of view,'' says the BIAC report.

The BIAC accuses the OECD report of being an attempt to mobilise OECD nations to adopt a strategy designed to make "low tax countries abandon the activities upon which their livelihood is based and in which they have developed recognised expertise. A result of such a strategy could make these countries economically dependent on other countries,'' the BIAC warns.

The business committee further charges that the theme of the OECD initiative, which involves concerted action, runs counter to the notion of free and unrestricted cross-border business activities.

Critics have also charged that the OECD, by blurring the distinction between entirely legal tax avoidance and illegal tax evasion, have adopted an untenable position.

Competition between countries to attract and win foreign investment is a healthy phenomenon, says the BIAC, that could sustain reasonable levels of tax burden and prevent potential excesses.

The OECD report, says its business committee, could "turn the clock back many years, constituting the beginning of the rebirth of artificially imposed restriction''.

The prevailing climate of liberalisation and encouragement towards globalisation means that multinational enterprises should be free to carry on their activities where the environment is most conducive.

The BIAC expresses its "disappointment'' that it was not consulted during the preparatory stage of the project, as is normally the case. "We believe that prior consultation of the business community would have made the report a more balanced document,'' says the BIAC, again echoing views which have been privately expressed by business men and women in Bermuda.

The effect of the BIAC report is uncertain. Last summer, the OECD privately issued a list of countries, believed to total 47, which were potentially classified as tax havens contributing to harmful tax competition. In November, the Council of the OECD is to receive the final report on which of those countries and territories belong on the final list of havens against whom member states will be encouraged to impose a range of economic sanctions.

The report is to remain secret until May, 2000, when the final list will be made public. Countries on the original list were invited to respond. Bermuda, and approximately two-thirds of the others believed listed, approached the OECD to explain their positions.

Finance Minister Eugene Cox, who was among the delegation which approached the OECD, said later that he was confident that Bermuda had made a strong case and that the OECD had not previously understood that Bermuda raises various taxes and is, in general, a well-regulated jurisdiction which bases much of its income on indirect taxation.

Mr. Cox has not yet returned to Bermuda from the Commonwealth Finance Ministers' meeting held in the Cayman Islands last week.