THE BLOG

Finally, Tax Havens Taken Seriously

06/19/2013 12:10 EDT | Updated 08/19/2013 05:12 EDT

The G8 Summit has issued an action plan on fair taxes, increased transparency and open trade called the LOUGH ERNE DECLARATION.

There are some problems with it. The commitments are hedged a bit and the roadmap for action is vague. But the declaration definitely moves us forward in efforts to curb tax evasion facilitated by tax havens. Here's the upside:

• There is a clear statement of support for automatic tax information exchange

• The support for automatic information exchange includes developing countries.

• There is a strong language around profit shifting and the need to change tax rules.

• It commits to the principle that multinationals should report what tax they pay where.

Even a year ago, tax justice advocates could only hope that leaders of these powerful countries would pay attention to these issues. And certainly there was no assurance of commitment to automatic information exchange that would include developing countries.

But on the important issue of beneficial ownership, the British government proposals were watered down. Prime Minister Cameron was advocating for a public registry of the beneficial ownership of companies and much stricter enforcement of rules so governments would know who was really behind shell companies and trust accounts. This was clearly the most contentious issue and one where some countries, including Canada, were hesitating.

This issue is key because if tax officials or investigators can't establish the identity of the ultimate beneficial owner of a company or trust account -- then all the other things in the action plan won't work. How can tax information be automatically shared if you don't know where the beneficial owner resides? Which government should get the information? This failure means secrecy jurisdictions keep their biggest asset.

The G8 issued a supplementary policy paper on a G8 Action Plan Principles to Prevent the Misuse of Companies and Legal Arrangements that provides more details on proposed strengthening of beneficial ownership rules. This paper says:

"The G8 also commits to publish national Action Plans based on these principles that set out the concrete action each of us will take to counter money laundering and tax evasion. To ensure G8 members are held to account for their commitments, the G8 agrees to a process of self-reporting through a public update on the progress made against individual action plans and to inform the Financial Action Task Force."

Canada also released a document: G-8 Action Plan on Transparency of Corporations and Trusts

It commits to:

• Improving Canada's money laundering and terrorist financing risk assessment approach, for which an interdepartmental working group has already been established with the goal of developing a comprehensive risk assessment framework and undertaking a formal assessment of these risks domestically;

• Implementing amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations that will improve customer due diligence measures, including those related to corporate and trust beneficial ownership information, set to come into force in early 2014, and;

• Public consultation on the issue of corporate transparency with a focus on bearer shares and the ability of competent authorities to access information on beneficial ownership, as committed to in Economic Action Plan 2013.

While some of these are simply re-announcements of measures outlined in the last Federal Budget, it contains some positive measures. Canada's plan, however, is weaker than the British and American plans which were released at the same time. For instance, the British plan commits to a public registry. The US plan commits to pushing state governments with lax rules to tighten up their regulations and to setting up public registries.

A recent article in the Canadian Bar Association, reports that it is easier to set up a shell company in Canada than anywhere else in the world, except for the United States. Canada's action plan does not acknowledge that there is a problem here at home in this regard. There is no clear commitment to bring our practice up to the proposed new international standard. So Canadian tax justice advocates still have plenty of work ahead.

The G8 itself is not an international organization like the OECD or the UN and can't implement anything on its own. But it is a forum where the leaders of the richest and most powerful countries discuss pressing global issues. They can develop a consensus and create political momentum to make things happen in other places.

The fact that the G8 addressed tax fairness means the tax haven issue has made its way to the top of the global political agenda.

That it quite an accomplishment for a small global tax justice network campaigning for the past decade to get governments to take action.

The British Prime Minister also deserves credit for putting forward an ambitious G8 tax havens action plan. And this plan seems to have emerged with G8 endorsement with less watering down than we had feared.

Much will now depend on implementation.

You can bet the high priced lawyers and accountants at big banks and multinational corporations are already looking at ways to work around these developments. In the other corner, tax justice advocates will be stepping up efforts to maintain the public pressure. That is what helped get as far as we have.