Global crackdown on ‘scourge’ of tax avoidance

Relaxed activism : campaigners want tax transparency and more development money © Getty Images

World leaders have promised new international rules on business tax: development campaigners say they could help solve global poverty. Is a solution coming closer?

It is one of the cruellest ironies: countries in the developing world with populations who are poor and hungry tend to be rich in natural resources. The wealth from mining precious metals, extracting minerals or drilling for oil, which ought, ideally, to be spread across the population, often ends up in the hands of a corrupt elite and enlarges the coffers of international corporations.

This phenomenon is sometimes known as ‘the resource curse’.

This week, development campaigners tried to convince the world’s leading industrialised democracies to close the tax loopholes which they say make this syndrome worse. Companies and individuals who make money from the resources in poverty-stricken countries can too easily hide their profits, they argue: if developing countries were able to collect tax, they could recover more wealth to spend on their own populations.

Most of the government leaders who gathered at the G8 summit in Northern Ireland yesterday were sympathetic, partly because the last year has exposed a high level of public anger about multinational companies cleverly moving their profits around the world to avoid tax: if ordinary taxpayers have to pay their share, why should the likes of Starbucks, Google and Amazon be allowed to get away with the minimum?

‘Austerity might be the real reason why many politicians are now interested in this issue,’ admitted one campaigner from IF. ‘But if this agenda works then developing countries will also benefit – because they will get control of their resources for the first time and so help beat poverty.’

George Osborne, the UK finance minister, said proudly that ‘more progress has been made on this issue in the last 24 hours than in the last 24 years:’ The British government, playing host, was pressing for a broad crackdown on tax avoidance, but in the end what was achieved fell far short of a total solution.

Six of the countries at the meeting promised to publish an action plan to tackle tax secrecy, but Russia and Germany refused.

Who benefits?

Just because there is a clear motive – making more money – does not prove that a crime has been committed, say the defenders of current business practices. If there are legal ways to hide huge profits from the prying eyes of the tax authorities, why should either companies or individuals be more open?

Nonsense, says the IF campaign: there is ‘a clear moral imperative’ to uncovering where and how money is squirreled away by those who exploit the natural wealth of the poor world: unless some profits find their way back to developing countries in the form of tax payments, global inequality, and with it hunger and malnutrition, will worsen.

You Decide

  1. ‘Businesses provide enough public benefits already even without paying tax.’ Do you agree?
  2. ‘Those who want to evade taxes will have nowhere to hide’ said David Cameron. Is this a fair description of the G8 summit outcome?

Activities

  1. Find out more about the IF campaign and how you can get involved.
  2. Choose a developing country rich in natural resources and research where the wealth ends up.

Some People Say...

“Businesses have no responsibility to the rest of society or the wider world.”

What do you think?

Q & A

I don’t have to pay taxes.
Not at the moment. But once you are earning money, either as an employee or when running a business, you may find you develop strong views on how much of your pay or profits are claimed by the government to spend on society’s joint priorities. For example, will you be one of those arguing for a larger budget for overseas aid, or not?
Everyone should pay their fair share.
That’s a good principle. But governments have to decide how to apply it in practice. What wasagreed this week is quite technical, but it will start to force greater openness about where profits end up and make taxes collection easier: all the G8 countries backed a register of who really benefits from profitable companies, but none backed Britain’s call for the information to be made public.

Word Watch

Hide their profits
Governments have set their sights on several popular ways to legally evade tax: creating so-called shell companies, which have no employees and no function other than as a place to park profits; using tax havens with minimal tax rates and high levels of secrecy; moving money made in one country to another through clever accounting.
G8
The Group of Eight, once seen as the club of the most powerful industrialised nations, is now looking very skewed towards the West because neither China nor India are included. Some commentators believe the G20 has more importance in global affairs these days.
Playing host
Whichever country holds the rotating presidency of the G8 invites the other heads of governments to a meeting (the summit) at which it can set the agenda and so force its own priorities into the discussion.
Agreed this week
In the Lough Erne declaration, issued yesterday at the summit, all the nations except Russia and Germany vowed to ‘fight the scourge of tax evasion’ by ensuring automatic exchange of tax information and changing the rules to stop multinational companies shifting profits across borders.

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