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Tax at the G8 – a rich country stitch up?

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Reports of the G8’s death were premature. It’s alive and kicking, and might even do some good on one key economic issue this year – tax.

This may come as a surprise since so many observers wrote off the grouping of the seven leading industrial countries – US, UK, Canada, Japan, Germany, France, Italy, with Russia thrown in to make 8 – after the global financial crisis elevated the G20 to the top of global economic decision-making.

Since the G20 leaders started meeting in 2008, the G8 has continued its annual summits, usually with a big donor initiative as a centrepiece – agriculture in Italy in 2009, maternal health in Canada in 2010. But this year, the UK is hosting, and has made a bid to return the G8 to economic relevance by seeking landmark agreements on a controversial global issue: tax dodging and financial secrecy.

In this new era of global power dynamics, the rules are being re-written

If a country is bold enough to suggest taking an issue that has been claimed by the G20 into a different forum and coming up with new agreement, well, no-one is going to stop them.

Talking tax

This year, the big donor initiative is still there – the UK hosted a high-profile pre-summit meeting last Saturday, at which pledges for $4.1 billion in new funding for nutrition were made.

But the excitement is all about tax. David Cameron, UK Prime Minister, has been driving for an agreement on requiring public registries of “beneficial ownership” of companies. In the swelter of corporate holding companies, shell companies, tax havens, and proliferating subsidiaries, it has become commonplace for companies to store their funds in accounts that can’t be easily recognised or traced.

Although corporations maintain that they set up all these entities for a variety of reasons, one undeniable result is that less tax is being paid, especially to the developing countries that are often the source of the raw materials used in international trade.

When they use tax havens, like Switzerland or Mauritius or the British Virgin Islands, their secrecy rules make it nearly impossible to get answers

The OECD estimates that poor countries lose an amount to tax havens that is three times what they receive in aid each year.

To begin to untangle it all, we need these entities to answer what should be a relatively simple question: who are you? That’s what a public registry of beneficial ownership would provide. And then we need to find out: where’s the money, and what tax have you paid? That’s where the other big issue on the table at the G8 comes in: requiring automatic exchange of information between governments on tax payments. And again, the main problem is with the tax havens.

What can the G8 do?

The G8, acting together, can put effective pressure on these small jurisdictions to conform to strong international standards. Indeed, the G8 countries actually control a fair number of the havens, such as the British overseas territories! 

That muscle is why this moment is important:

It’s a good bet that the G8 won’t take up this issue again after this year, so this is the opportunity.

This week will see the highest pressure yet on the tax dodgers, and it’s become a high stakes game, where we really don’t know what the outcome will be. While the UK government seems to be holding firm, a range of other G8 members – Russia, Canada, the US, Germany, Japan – are all cited as potential blockers to a strong collective declaration that will signal the beginning of the end for the industrial-scale tax dodging that tax havens make possible. 

So we are bracing for some sort of compromise. We are most concerned about those that would maintain confidentiality of any new registries or exclude developing countries from the benefits of information exchange.

The G8 would justify the second option by saying that poorer countries can’t be relied on to handle so much information, or even understand it. They might say they’re committed to expanding the deal to include them in due course.

None of that will be good enough. ActionAid and other civil society groups will blow the whistle on any deal that is a stitch-up among rich countries and tax havens.

But a few days before the summit, we are hopeful that public pressure, which has reached fever pitch with the recent exposés of tax dodging by big companies like Starbucks and Apple, and our own exposés of funds lost to companies like ABF in Zambia and SAB Miller in Ghana, will mean that the G8 heads of state dare not emerge from their deliberations with anything less than a deal that sets the world on a course to genuine tax justice for all. 


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