The world’s wealthiest nations are promising to fight what they call the scourge of tax evasion. This week’s meeting of the Group of Eight industrialized countries concluded with a pledge to end the use of tax shelters by multinational corporations.
But there are still big questions about how they will make a dent in the problem.
In the aftermath of the global recession, countries all over the world have struggled with budget shortfalls. More and more of them have come to blame part of their revenue problems on one culprit — tax avoidance.
The G-8 statement this week represents a kind of doubling down on the determination of wealthy countries to take on the problem.
“If you want a low-tax economy, which I believe is fundamental to growth, you have to collect the taxes that are owed,” British Prime Minister David Cameron said Tuesday. “That is only fair for companies and for people who play by the rules.”
Big Questions Remain
But the G-8 statement was short on specifics about how to address the problem.
It says tax authorities in different countries should share information more readily. It also says multinational companies should be more transparent about the taxes they pay.
Cameron spoke about creating a new international mechanism that would track where companies are earning their profits and under what name. That would make clear whether they are paying what they owe.
But the statement stops short of advocating a central ownership registry for corporations — something many tax activists have long pressed for.
Jack Blum of Tax Justice Network USA says such a registry would make it harder for companies to hide their profits in shell corporations.
“A registry will go a very long way to helping people sort out who’s hiding money where and really help tax collectors collect the money that’s owed,” he says.
Blum says the G-8 statement is a step in the right direction.
“They’ve said a lot of the right things,” he says. “Now the question is how will they do it?”
Blum says it is now up to lawmakers in the G-8 countries to spell out and agree on exactly what they want to do — and that promises to be a long and contentious process.
“This isn’t a treaty, it’s nothing that’s passed the Congress,” he says. “There are many hurdles between here and real action.”
Anticipating Business Opposition
Any major change in U.S. tax law is certain to face opposition by business groups.
Catherine Schultz of the National Foreign Trade Council says companies shift money around in a complex global economy for good reason. And what often seems like tax evasion to the public is really a legal effort by companies to minimize their tax bill.
“If it’s legal under the tax rules for them to minimize their taxes, we need to change the underlying tax rules, we need to go to tax reform, we need to fix our system,” Schultz says.
Business groups also insist the real problem is that U.S. corporate tax rates are higher than in other developed countries. They say that any effort to crack down on tax evasion needs to be done as a part of an overall reform of the nation’s tax code.