G8 addresses tax evasion issues

The summit of the Group of Eight (G8) developed countries has seemingly been able to achieve substantial agreement on tackling international tax evasion and clamping down on avoidance schemes. This is necessary given the scale of the schemes, which have cost treasuries hundreds of billions of dollars and contributed to corruption and instability in developing countries. Transparency is the most effective way to confront those who do not want to adhere to the letter and spirit of the law. The proposals include efforts to reveal the ownership of companies; openness about how much and where corporations pay tax and the reporting of payments to governments by “extractive” industries. Unrecorded payments to governments and officials are a major source of corruption and often deprive countries of revenue needed for social development programmes.

Until now, companies have been able to hide many of their practices by claiming that transparency will undermine their competitive advantages. However, governments should be able to name, shame and, where necessary, prosecute those companies that refuse to adhere to the law.

However, governments also have a responsibility to ensure that their taxes do not contribute to making the cost of doing business prohibitive. And, while there is some justification for the popular anger caused by the perception that companies are not paying their fair share of tax in these difficult times, they cannot be faulted for trying to maximise shareholder value, as is their responsibility.

As is usual, some non-governmental organisations are demanding more from the G8 member states, specifically effective legislation with teeth. Good intentions aside, the G8 — along with many other international organisations — has an unfortunate record of failing to effectively implement its decisions. Once back home, leaders have to deal with domestic politics, lobby groups and other local and international crises. It must be hoped that popular support and the chance of more tax revenue for their treasuries will help them keep their commitments beyond the pomp and ceremony of the summit.