G8 progress on corporate tax avoidance still ‘long way to go’

Governments are to share their tax information automatically under an agreement reached by last month’s G8 summit to eliminate tax dodging.

This openness will be accompanied by an order to shell companies, frequently used to exploit tax loopholes and invest money anonymously, to name their effective owners.

Critics, however, complain that although the new measures target evasion, they leave untouched the perfectly legal tax avoidance devices used by large companies.

The G8 members – Canada, France, Germany, Italy, Japan, Russia, the UK and the US – expect their agreement to flush out tax evaders and money launderers by exposing the beneficiaries of shell companies, special purposes companies and trust arrangements.

The UK, for example, will compile a central register of beneficial owners but will conduct a consultation on making it publicly accessible.

The G8 agreement follows a recent similar proposal from the Organisation for Economic Co-operation and Development and comes a week after the UK announced a deal with its crown dependencies and overseas territories, including the Channel Islands, Gibraltar and Anguilla, under which information on the foreign companies banking their profits there will be shared. About a fifth of offshore tax havens used by multinationals to shelter or hide cash are British dependencies.

Delegates at the summit paid particular attention to mining companies, many of which were reported to be using complicated ownership structures in the Netherlands and Switzerland to avoid taxes on minerals extracted in developing countries.

A more aggressive unilateral measure will be introduced in the US this year compelling financial enterprises to reveal all citizens’ assets held overseas. The penalty for non-compliance would be a heavy tax.

Commentators say nations inside and outside Europe could copy the US. The G8 communiqué said significantly: “We call on all jurisdictions to adopt and effectively implement this new single global standard at the earliest opportunity.”

On avoidance, through which several large companies, including Amazon, Apple, Google and Starbucks, have legally minimised their tax bills, the G8 members appealed to individual nations.

The communiqué said: “Countries should change rules that let companies shift their profits across borders to avoid taxes.”

The present legislation allows revenue from UK customers to go directly into foreign bank accounts, permitting companies to avoid UK tax, even if they trade in the country.

The G8 members drew some hope from a meeting of G20 finance ministers, due this month, which could propose rule changes. They promised to “take the necessary individual and collective action” to back G20 recommendations.
The more cynical observers likened the resolve of the UK prime minister David Cameron to rewrite the rules to the 2009 declaration by his predecessor Gordon Brown welcoming “the beginning of the end for tax havens”. Such optimism was seen by many as premature.

Murray Worthy, tax campaigner at the UK anti-poverty group War on Want, said: “Talk of stopping companies shifting profits to avoid taxes is a huge step forward, but we have heard great promises from the world’s heads of state before. It is what they do that counts.”

Alex Prats, Principal Economic Justice Advisor, Christian Aid told Ethical Performance: “The summit was a success in that there was clear acceptance that the tax abuse we estimate costs developing countries some US$160bn a year must be stopped. The question is how. The summit endorsed Automatic Exchange of Information. It also supported country-by-country reporting by multinationals to help end profit shifting into low-tax jurisdictions, but, unfortunately suggested such information would only be shared with tax authorities. And it failed to live up to expectations over establishing public registries of ownership of companies and trusts, which would help end tax haven secrecy. It agreed registries be established, but again, only open to the authorities. So it was a start, but there is still a long way to go.”