Treasury rulings on
investment bonds
Recently
the
Department
of
Treasury
restricted
Guam
and
some of the other territories from issuing certain types of tax-
exempt investment bonds, or from establishing tax havens for
foreign investors and U.S. corporations.
These proposed revenue
enhancing
initiatives
and
the
federal
response
to
them
illus-
trate
the
problem
caused
when
the
goal
of
greater
selfsufficiency for the territories clashes with U.S. tax and fiscal
policy.
Some insular officials claim that these actions contribute to growing uncertainty of the overall objective of U.S.
policy to the territories.
The examples also raise questions
whether
the
territories should
ferent than states,
under U.S.
receive
special
treatment,
tax and fiscal policies.
dif-
Arbitrage bonds
In late 1983, Guam attempted to issue $850 million worth of
tax-exempt securities known as arbitrage bonds.
Guam hoped to
earn revenue from the interest earned when the tax exempt bonds
are reinvested at higher rates of interest.
Treasury blocked
the issuance of the bonds and announced that it was recommending
immediate leqislation to end these bonds' tax free status.
A
Treasury official said that since the states have been prohibited from marketing these bonds since 1969, the action was taken
to
prevent
the
territories
from
taking
further advantage of
tax loophole which the Congress was seeking to remove.
a
Guam officials argued that Treasury's action was contrary
to the U.S. objective to encourage economic self-reliance.
They
pointed out that just prior to the Treasury announcement, Puerto
Rico had marketed a $450 million bond issue.
According to the
Governor of Guam, Treasury's decision cost Guam $91 million in
potential equity capital.
The Governor and other Guamanian
officials cited Treasury's action as an example of a federal
policy contradicting a U.S. objective to allow the territories
to become more self-reliant.
Tax
havens
Another example cited by Guam was a December 1982 Treasury
decision to prevent Guam's proposal to become an international
finance center.
Guam wanted to establish itself as a finance
center by enhancing U.S. corporations' access to international
‘capital markets by offering tax free securities, such as Eurobonds,
to foreign investors.
At the time,
the Netherlands
Antilles,
bond
under
center
tax
for
treaty
mainland
with
the
United
companies
States,
seeking
to
served
tap
as
a
foreign
sources of capital.
Treasury opposed Guam's attempt to obtain a
Similar advantage, citing its general opposition to tax havens.
A Treasury official
said
that
such
28
5000238
arrangements
are
a
drain
on