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Tuesday, 24 July, 2001, 10:30 GMT 11:30 UK
US-UK tax treaty on the cards
US Treasury Secretary Paul O'Neill
O'Neill: strong dollar is not negotiable
The US and the UK are about to sign a treaty ensuring that companies based in one but working in the other do not pay tax twice.

The treaty is the highlight of Tuesday's talks between US Treasury Secretary Paul O'Neill and the UK's Chancellor of the Exchequer, Gordon Brown.

But one key issue, the strength of the dollar against both the pound and the euro, is likely to remain largely off limits.

Bush said when he appointed me that I was his economic spokesman. So don't listen to anybody else

Paul O'Neill, US treasury secretary
Although UK and European central bankers and policymakers often voice complaints about the damage to their economies, Mr O'Neill has repeatedly said US interests require a strong dollar.

The governments on both sides want to keep the focus on the double taxation treaty.

Taxing twice

Each country is the biggest inward investor in the other, and the treaty - which has taken three years to negotiate - is described by UK officials as a "milestone" in the relationship between the two.

For the first time, capital gains taxed in one jurisdiction will be exempt in the other, and the same goes for pension contributions and, in some circumstances, withholding taxes on investment income.

Because the meeting comes just days before World Trade Organisation (WTO) officials must decide whether to push on with new trade talks scheduled for November in Doha, Qatar, trade and investment issues are also riding high on the agenda.

And discussion of European Central Bank policies is also likely to feature.

Poor exchange

But exchange rate issues will dominate the minds of most observers.

UK Chancellor of the Exchequer Gordon Brown
Brown: prudent talks over tax treaty
The pound sterling is low against the dollar but remains strong against the euro, meaning that raw material imports from the US are pushing up prices for UK businesses, while their finished goods remain less competitive when exported to continental Europe than local products.

Although currency questions will undoubtedly surface during Mr Brown's talks with Mr O'Neill, action is off the agenda.

Mr O'Neill last week contradicted his own boss on the strength of the dollar after President George W Bush said the markets should decide the value of the dollar.

Reinforcing his "strong dollar" message, Mr O'Neill told reporters: "He [Bush] said when he appointed me, when we sat on the stage in Austin (Texas), that I was his economic spokesman. So don't listen to anybody else."

See also:

20 Jul 01 | Business
US eases stance on 'tax havens'
07 Jun 01 | Business
IMF names new top officials
02 May 01 | Business
$1,350bn US tax cut deal
05 Mar 01 | Americas
Bush cabinet profiles
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