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G8 decisions could make life very hard for tax dodging companies

5 July 2013 | By Barry Johnston

Now that G8 country Presidents and Prime Ministers have had their summit in Northern Ireland, where they had plenty to say about the 'scourge' of tax evasion, just how much has actually changed?

We didn’t expect the world to change overnight, and right now, it’s business as usual. Multinational corporations are still shifting their profits into tax havens, out of tax authorities’ reach. Tax havens are still sheltering dirty money from tax evaders, money launderers and worse.

Isle of Shady tax haven

Pop-up tax haven on London's South Bank as part of the Enough Food IF campaign

But that’s not the end of the story, because the G8 did make three encouraging decisions which could eventually make life much harder for tax dodging companies and others with money to hide.

Multinational corporations

The first G8 decision concerns multinational corporations. Campaigners have for years urged them to reveal more about their finances, to help tax authorities, investors and others to tell whether they are paying the right amount of tax.

Specifically, we’ve asked them to disclose their results separately for each jurisdiction in which they operate. For many companies, including Starbucks and Google, which have major operations in the UK but pay very little tax here, the results would be embarrassing at best. 

Some firms argued that the reform would be too costly or that they would not achieve the desired result – that companies pay their fair share of tax in the countries where theyearn their profits.

Country-by-country reporting

But G8 leaders seem to have rejected those complaints. At the end of their meeting, they endorsed country-by-country reporting and asked rich countries’ club the Organisation for Economic Co-operation and Development (OECD) to work out how it can be applied to ‘major multinationals’.

In time, this could shed light on companies’ finances, in a way which will bring major benefits for people in both rich and poor countries, not to mention investors. Christian Aid estimates that at present, poor countries lose $160 billion a year to tax dodging by multinationals, which is far more than they receive in aid.

The G8’s decision on country-by-country isn’t perfect - for instance, the plan doesn’t seem to involve making the new information available to the public as well as to tax authorities – but it is an encouraging start. 

Automatic information exchange

Companies and individuals who dodge tax will also be unnerved by a second G8 decision. That was to call for countries across the world to automatically exchange information about foreign taxpayers’ finances – and ask the OECD to work up a system to make it happen.

Automatic information exchange will make it harder for individuals and companies to hide money from their own countries’ tax authorities and the police, by putting it ‘offshore’. At present, there is some very limited information exchange between countries, but not nearly enough to deter tax evasion, corruption, money laundering and other financial crimes.

Who really owns a company?

Finally, the G8 made a stab at stopping the massive tide of crime which flows from the fact that, at present, it’s possible to hide the identity of the people who really own companies. This may sound a minor thing but it’s not.

If the police and tax authorities can’t track down the real owners of companies involved in terrorism, weapons and drug smuggling, fraud, tax evasion and other criminal activities, then there is little deterrent to the criminals involved. Investors, too, need to know with whom they may be getting financially into bed.

A long way to go towards tax fairness and transparency

Campaigners are pleased that the G8 acknowledged the need for countries to create national registers of who really owns companies. But we’re disappointed by the vagueness and lack of urgency in what the G8 said on this matter – and by the fact that there was no mention of the registers being public.

We want citizens, the media and campaigners to also be able see the registers – the more eyes on the information, the more likely it is that abuses will be stopped. Many recent corruption and tax-dodging exposes have been the work of journalists and campaigners. 

So even though the G8 has made some good decisions, which we probably wouldn’t have believed possible a year ago, there’s a very long way to go. It will be vital to keep up the pressure in coming months, to ensure these first steps towards tax fairness and transparency bring the benefits they should to law-abiding people the world over.

Join our tax justice campaign >  



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Daily Mail Online: was also published as a comment on the Daily Mail Online.

Find out more about our Tax Justice campaign.

About the author

Barry Johnston is Christian Aid's senior UK political adviser.

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