World leaders at the Group of Eight summit in Northern Ireland signed off on an agreement aimed at cracking down on tax evasion as part of transatlantic trade negotiations.
In still uncertain economic times, U.S. and European leaders want to force large corporations to pay more taxes and reduce the incentive for businesses to use offshore havens to reduce their tax burdens.
Many of the world’s leading companies, ranging from Apple to Google and Starbucks, employ complex corporate structures involving multiple subsidiaries in several countries to minimize the tax bills in their home nation.
At the conclusion of the summit Tuesday, the leaders released a 10-point action plan demonstrating a vague commitment to fight tax abuse internationally, pledging to make “a real difference” by abiding by its tenets.
“Private enterprise drives growth, reduces poverty and creates jobs and prosperity for people around the world,” the plan states. “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.”
The Lough Erne declaration, named for the scenic lake where the leaders met Tuesday, includes calls for tax authorities to share information and stop company profits from being shifted around to avoid taxation.
Sen. Carl Levin, D-Mich., quickly applauded the agreement. As chairman of the Senate Permanent Subcommittee on Investigations, Levin has held several hearings on offshore tax avoidance by multinational corporations and has written bills to crack down on the practice.
“I said before the summit that the G-8 nations were poised to strike a hammer blow against offshore corporate tax avoidance,” he said. “The G-8 commitments made today, if carried out, can bring that hammer down.”
Despite his enthusiasm, Levin touched on the key problem in the document – there is no formal agreement on specific reforms and no enforcement mechanism. The leaders said they would develop the action plan at this year’s G-20 summit to be held in St. Petersburg, Russia, in September.
Here are the 10 tenets:
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.