World leaders at the G-8 summit declared Tuesday that governments must work together to close loopholes that allow multinational corporate giants to avoid paying taxes in their home countries.
In a joint statement at the conclusion of a two-day summit, leaders of eight of the world’s wealthiest countries said tax authorities should share information “to fight the scourge of tax evasion” and make it harder for companies to “shift their profits across borders to avoid taxes.”
But the key word in the document may well be “should”— the partnership made no formal agreement on any specific reforms. The agreed aspirations will be developed at this year’s G-20 summit.
Still, host Britain heralded the agreement as a good first step toward creating a new environment of corporate transparency. A key principle in the plan would require multinationals to declare how much tax they pay in each country.
The tax initiative of the G-8 club of Britain, the United States, Germany, Russia, France, Italy, Canada and Japan reflects widespread anger over the ability of foreign companies to funnel profits to tax-friendly countries.
British lawmakers have sharply criticized Google, Starbucks and other U.S. multinationals operating in Britain for exploiting tax rules by registering their profits in neighboring countries such as Ireland, which charges half the rate of corporate tax, or paying no tax at all by employing offshore shell companies.
Many of the world’s leading companies, ranging from Apple to the management company of U2, employ complex corporate structures involving multiple subsidiaries in several countries to minimize the tax bills in their home nation. One such maneuver, called the “double Irish with a Dutch sandwich,” allows foreign companies to send profits through one Irish company, then to a Dutch company and finally to a second nominally Irish company that is headquartered in a usually British tax haven.
The United States said it was committed to reforming the global accounting rules and collecting more of U.S. companies’ profits banked outside American shores.
“The goal of cracking down on tax avoidance, bringing greater transparency to it, this is something we’ve pursued in the United States, and we agree with [British] Prime Minister Cameron that we can work together multilaterally to promote approaches that achieve those objectives,” said Ben Rhodes, President Barack Obama’s deputy national security adviser.
Campaigners for greater tax transparency appealed to the G-8 to ensure that reforms benefited the poorest countries of Africa, South America and Asia as well as the rich west. Anti-poverty campaigners have stressed that shell companies are a key method of spiriting away funds from a country.
Cameron says Britain will lead by example by creating a registry of who really owns companies, and will consider making it public— an idea viewed skeptically by many other countries fearful of scaring companies out of their jurisdictions.
“G-8 leaders must decide whether they want to shape the transparency revolution or resist the tide of history,” said Adrian Lovett, Europe executive director at development campaign group One.
However, Britain itself stands accused of being one of the world’s main links in the tax-avoidance chain. Several of the UK’s own island territories—including Jersey, Guernsey and the British Virgin Islands—serve as shelters and funnel billions each week through the City of London.
“Of course Britain’s got to put its own house in order,” said Britain’s treasury chief, Chancellor of the Exchequer George Osborne, who address the G-8 meeting on corporate tax reform along with International Monetary Fund managing director Christine Lagarde.
Before the summit, Britain announced a provisional agreement with the finance chiefs of nine of its offshore dependencies and territories to improve their sharing of information on individuals and companies banking cash there.