The G 8 Summit declaration has undoubtedly sent a stern message on the will to crack down tax havens and fiscal elusion. The UK Premier has performed forceful efforts to build up a sound and sensible agreement on curbing the extensive use of shell companies devised to circumvent rules. He has been forced to wrestle hard in convincing Canada and British overseas territories dragging their feet when confronted with serious commitments in this field. David Cameron has devoted much time and effort in achieving this goal and merits full praise for the overall result.
But a careful examination of what has been agreed shows a lot of loopholes yet to be filled. The G 8 declaration doesn’t encompass any timetable to implement the tough foreseen discipline, nor a precise rule book on how turning into practice such good intentions. Most tax havens will simply wait and see till others move, fearing financial activity flying to safer shores not subject to fiscal scrutiny.
Furthermore, the key issue lies in reining fiscal elusion, open fraud amounting to a residual side effect. The Apple, Google or Amazon cases show beyond any reasonable doubt that dubious practices were provided full green light and support by their Inland Revenue department. Deterring tax avoidance can only be enforced should multinationals declare and pay for all their income and profits, regardless of the territory they come from.
Past record shows the US, Canada or UK administrations have always taken an appallingly lenient approach towards big companies. Other countries follow a similar pattern.Thus, a lot of home work needs to be tackled before reaping effective benefits from this worldwide virtuous campaign. The more so as Obama is bound to face a strenuous challenge in luring the US Congress to endorse this agreement. Until he performs that goal no real upgrade is to be expected. Don’t expect any other country to impose a tough discipline on their home enterprises, putting at risk their competitive edge before a global even playing field is fully set up.
Much talk has been devoted to increased transparency in tax havens. Very little to on-shore activities that mask massive elusion. The City for instance offers extensive platforms to enjoy a subdued tax bill should you happen to be a well-off non-resident. Faced with mounting pressure in the Ecofin, the Luxembourg Finance minister produced some years ago bills showing gold bullion could be bought VAT-free in London. Evidence was also provided of foreign bank accounts that escaped any interest withholding tax, much to the embarrassment of the UK Chancellor.
When it comes to real business don’t count on governments to endorse wholeheartedly a strategy that might undermine the ability to attract capitals and wealth. The Summit declaration seems to embed a fresh approach in tackling this shortcoming. Only the long run will show us whether expectations match current claims.