G8 Leaders Pledge to Tax and Transparency

Leaders of the G8 major economies have agreed new measures to clamp down on money launderers, illegal tax evaders and corporate tax avoiders. The summit communique urged countries to "fight the scourge of tax evasion" (see text at the end of this blog).

Tax, trade and transparency - dubbed "The Three Ts" - were placed at the top of the UK's agenda for its presidency of the G8 and the summit just concluded in in Northern Ireland. The G8 consists of the UK, US, Germany, France, Italy, Russia, Canada and Japan. It follows revelations about the ways in which several major firms - including Google, Apple, Starbucks, Vodafone and Amazon - have minimised their tax bills. Here in Zambia, ActionAid recently revealed that Zambia Sugar in which the government has a stake, paid no corporate taxes on its earnings.

The summit saw the launch of free trade negotiations worth $100b between the EU and US, which UK Prime Minister David Cameron, who was hosting the summit, dubbed "the biggest bilateral trade agreement in history".

The Pledges on Tax and Transparency… on government

The G8 declaration said: ‘Private enterprise drives growth, reduces poverty and creates jobs and prosperity for people around the world. Governments have a special responsibility to make proper rules and promote good governance. Fair taxes, increased transparency and open trade are vital drivers of this.’

As part of this, it said: ‘Governments should publish information on laws, budgets, spending, national statistics, elections and government contracts in a way that is easy to read and re-use, so that citizens can hold them to account.’

Governments agreed to give each other automatic access to information on their residents' tax affairs and easily obtain information on exactly who owns companies.

The Pledges on Tax and Transparency… on private business

They will also require shell companies - often used to exploit tax loopholes and invest money anonymously - to identify their effective owners.

The measures are designed to combat illegal evasion of taxes, as well as legal tax avoidance by large corporations that make use of rules, loopholes and tax havens.

Leaders agreed that multinationals should tell all tax authorities about what taxes they pay and where.

"Countries should change rules that let companies (legally) shift their profits across borders to avoid taxes," the communique said.

Illegal activities, including tax evasion and money laundering, will be tackled by the automated sharing of tax information.

Ahead of the summit, the Organisation for Economic Co-operation and Development (OECD), proposed to share tax information by building on an existing system set up by the US and five major European economies, but on a global scale.

"This international tax tool is going to be a real feature of ensuring that we get proper tax payment and proper tax justice in our world," said Mr Cameron, who claimed that it meant "those who want to evade taxes have nowhere to hide".

The OECD includes all of the G8 members except Russia.

Among the information to be shared will be who actually ultimately benefits from the shell companies, special purpose companies and trust arrangements often employed by tax evaders and money launderers.

Earlier in the day, Chancellor George Osborne unveiled plans for a UK register of companies and their owners. The White House also announced a similar plan for the US.

Last week the UK also unveiled a deal with its crown dependencies and overseas territories - including the Channel Islands, Gibraltar and Anguilla - to start sharing more information on which foreign companies bank their profits there.

About a fifth of offshore tax havens, which are used by multinationals to shelter cash from the tax authorities, are British dependencies including the Cayman Islands.

"Of course Britain's got to put its own house in order," said Mr Osborne – UK Finance Minister - adding that the government would launch a consultation on whether the register should be published or just be available to the HMRC, the UK tax authority.

Speaking during the summit, Mr Osborne said more progress had been made on reforming the global tax system in the past 24 hours than the "past 24 years". Later on BBC Radio 4 programme he said “The existing system, created in the 1920s, has not been updated as the world has changed and the internet has arrived.”

Mining Firm Targeted for Transparency

While many developing countries have vast extractive resources like oil, gas and minerals, they are often sold at below market prices, or the money made is misused or poorly invested.

Under the transparency agreement, the G8 nations will partner with eight developing countries to help them improve the information available on the sale of extractives.

The G8 communique also demanded more transparency from mining firms. It follows revelations that many major mining companies use complex ownership structures in the Netherlands and Switzerland to avoid paying taxes on the minerals they extract in developing countries.

"Developing countries should have the information and capacity to collect the taxes owed them," the communique said.

"Other countries have a duty to help them."

And they pledged to help developing countries build the capacity and information to collect the taxes owed to them.

The governments agreed that mining companies should disclose all the payments they make, and that "minerals should not be plundered from conflict zones".

"We agreed that oil, gas and mining companies should report what they pay to governments, and that governments should publish what they receive, so that natural resources are a blessing and not a curse," said Mr Cameron.

There is a global initiative called Extractive Industries Transparency Initiative of which Zambia has implemented. Currently, 23 countries worldwide comply with this. The G8 pledges to work with developing nations implement EITI.

The partnerships for mining transparency involve: Burkina Faso (France); Colombia (European Union); Ghana (UK); Guinea (US); Mongolia (Germany); Burma (US); Peru (Canada); Tanzania (Canada). Private sector and civil society backing the partnerships include Rio Tinto in Peru and Mongolia and British Gas in Tanzania.

Building on agreements made between the G8 and resource-rich developing countries, the communiqué also includes a commitment to make land transactions transparent and for extractive companies to report all payments they make to governments. Governments should also report the income they receive from these mining companies.

Those co-operating on land rights include: Tanzania (UK); Nigeria (UK); Senegal (France); Burkina Faso (US); South Sudan (EU); Namibia (Germany); and Niger (EU).

Critics: “G8 Not There Yet”

The agreement was criticised by UK trade unions, who claimed it did not go far enough in tackling tax avoidance and fell short of the expectations set by UK Prime Minister David Cameron in the lead up to the summit.

Frances O'Grady, general secretary of the UK Trades Union Congress, said: ‘While some progress has been made on automatic information exchange, the agreement on reporting profits to tax authorities is so weak it is bordering on irrelevance.

‘Despite the high profile pre-summit lobbying, the British Crown Dependencies appear to have outmanoeuvred the G8 nations and got tax havens out of the agreement altogether.

She added: ‘We fear the declaration’s warm platitudes and hazy rhetoric will be far too easy for global companies to skirt around. Yet another opportunity has been missed to finally get to grips with global tax avoidance and evasion.’

Marta Foresti, head of politics and governance at the Overseas Development Institute think-tank, also claimed the communiqué should have gone further.

“On tax, the communiqué falls short of delivering hopes for commitments on open registries on beneficial ownership. The language focuses heavily on the word ‘should’,” she said.

“On extractives, the G8 falls back on what is already in place: Extractive Industries Transparency Initiative, US and European Union legislation. The ball is now in the corners of the EU and the Organisation for Economic Co-operation and Development to make sure many of these steps are actually implemented.”

Aid agencies warned that the measures did not go far enough. They expressed concern the world’s poorest countries would not be covered immediately and that new registers revealing who owns and controls companies would not be made public, with access limited to tax authorities.

Sally Copley, spokesperson for the IF campaign against global hunger, said: “The tax deal is a step in the right direction, but it also leaves major unfinished business. Although the G8 has set out the right ambition on information exchange, poor countries battling hunger can’t afford to wait to be included. It’s progress that more tax authorities will know who owns phantom firms so they can crackdown on them, but a summit focused on transparency can’t justify keeping this information secret. The public argument for a crackdown on tax dodging has been won, but the political battle remains.”

The pledges say only that developing countries “should have the information and capacity to collect the taxes owed them”, rather than guaranteeing them automatic access to the information from the start.

The most significant measure was a commitment to reveal such “beneficial ownership,” which could be a turning point in the battle against tax evasion and aggressive tax avoidance. The target is anonymous “shell companies” linked to money laundering, terrorist funding, tax evasion and corruption including profits siphoned off from poor nations which end up in tax havens.

More Work Needed

Adrian Lovett, Europe executive director of the ONE campaign, said: “A transparency revolution has begun.” But he added: “Despite the leadership demonstrated by the UK and France, the G8 collectively has taken only small steps to crack down on the phantom firms that play such a role in robbing Africa of its resources.”

He added: “David Cameron and François Hollande must now lead the fight in Europe, driving efforts to get EU members to agree to make information about who really owns and controls companies public. If African countries are to retain and invest their resources, rather than see them siphoned away by corrupt politicians and irresponsible businesses, this is what is needed. Nothing else will do.”

Soren Ambrose, spokesman for ActionAid, said: ”The G8 insists their new tax information sharing deal needs to include all countries including the poorest, and this is a welcome shift from cosy tax deals for rich countries alone. But it made no concrete commitments yet to ensure that this will really happen or that tax havens will sign up. We still risk a two-tier tax system emerging, with developing countries left trailing.”

Jose Manuel Barroso, EU Commission President said "Substance is more important than speed"

It beholds governments around the world to change rules and behaviour. Only by doing that will it force companies to change theirs. This is the cart before the horse. Moralising bout tax will not do it. Only legislation, regulation and systems will. At least the agenda for tax and transparency is set for the G8. Hard work and commitment must now follow.

David Ryder MA MBA

Consultant. Commentator. Entrepreneur.

www.Viewonzambia.blogspot.com



For more analysis on the G8 Tax read:

http://www.guardian.co.uk/business/2013/jun/19/g8-tax-avoidance-q-and-a

http://www.publicfinanceinternational.org/news/2013/06/g8-and-developing-world-countries-agree-mining-transparency-plan/


G8 LOUGH ERNE DECLARATION

Private enterprise drives growth, reduces poverty, and creates jobs and prosperity for people around the world. Governments have a special responsibility to make proper rules and promote good governance. Fair taxes, increased transparency and open trade are vital drivers of this. We will make a real difference by doing the following:



1. Tax authorities across the world should automatically share information to fight the scourge of tax evasion.

2. Countries should change rules that let companies shift their profits across borders to avoid taxes, and multinationals should report to tax authorities what tax they pay where.

3. Companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily.

4. Developing countries should have the information and capacity to collect the taxes owed them – and other countries have a duty to help them.

5. Extractive companies should report payments to all governments - and governments should publish income from such companies.

6. Minerals should be sourced legitimately, not plundered from conflict zones.

7. Land transactions should be transparent, respecting the property rights of local communities.

8. Governments should roll back protectionism and agree new trade deals that boost jobs and growth worldwide.

9. Governments should cut wasteful bureaucracy at borders and make it easier and quicker to move goods between developing countries.

10. Governments should publish information on laws, budgets, spending, national statistics, elections and government contracts in a way that is easy to read and re-use, so that citizens can hold them to account.

18 June 2013