June 18, 2013
Clark Gascoigne, +1 202 293 0740 ext. 222
E.J. Fagan, +1 202 293 0740 ext. 227
Despite Acknowledging Dangers of Phantom Firms, Obama Administration & G8 Fail to Endorse Public Corporate Ownership Registries
G8 Leaders Allow Multinationals to Continue Aggressive Tax Avoidance in the Dark
World Leaders Endorse Global Automatic Exchange of Tax Information, Transparency in Extractive Industries at Lough Erne Summit
WASHINGTON, DC – Global Financial Integrity (GFI) welcomed the statements from G8 leaders today reiterating the significant progress that has been made to crack down on international tax evasion and supporting a global standard of automatic tax information exchange, but the research and advocacy organization expressed disappointment in the White House and world leaders for failing to fully address the need for transparency in multinational companies’ basic financial reporting and in corporate ownership.
“Today’s declaration really solidifies the progress made to-date on battling international tax evasion and extends it to countries not actively pursuing such initiatives like Japan and Russia,” said Heather Lowe, GFI’s Legal Counsel and Director of Government Affairs. “However, President Obama and world leaders generally failed to grasp the need for public transparency in corporate tax reporting and corporate ownership information.”
Anonymous Shell Companies Remain a Problem
“While we are happy to see all G8 countries in agreement over the fact that anonymous shell companies are an international problem, which we appreciate is a significant step forward, the U.S. action plan under this commitment should have been stronger,” said Ms. Lowe. “This is essentially the same action plan the White House has had for two years under the Open Government Partnership, and the administration has yet to really ‘advocate for comprehensive legislation’ despite relevant bills having been introduced in Congress.”
“Also troubling is the fact that the G8 failed to endorse the concept that this information should be available to the public,” continued Ms. Lowe. “The declaration states that ‘Companies should know who really owns them.’ I feel fairly confident that most companies are already aware of who really owns them and if they don’t, they certainly should as a matter of sound corporate governance. Law enforcement and the public need to be informed about whom really owns a company.”
“Anonymous shell companies are the most-widely used method for laundering the proceeds of crime, corruption, and tax evasion,” noted Ms. Lowe. “But these phantom firms are also used to disguise campaign contributions, get around being barred from an industry, and dupe other business owners. Public registries of meaningful corporate ownership information are not only about stopping crime, they are about sound business practice and open and fair elections, among other things. The G8 Leaders failed to grasp this basic and important concept.”
Sharing Information to Curtail Tax Evasion
In a strong endorsement of international efforts to curtail tax evasion, the G8 communiqué states, “Tax authorities across the world should automatically share information to fight the scourge of tax evasion.”
“Automatic exchange of tax information is essential to detecting and deterring tax evasion,” noted Ms. Lowe. “Tax evasion is taking a serious toll on rich and poor countries alike. Automatic tax information exchange ensures that tax authorities and law enforcement in these countries have the necessary records they require to detect and deter tax evasion. We are thrilled to see the G8 endorse automatic exchange as the global standard moving forward.”
Ten European nations, including four members of the G8, and many of Britain’s overseas territories—such as notorious tax havens like the British Virgin Islands, Bermuda, and the Cayman Islands—announced in April that they would begin a pilot program to exchange information automatically on a multilateral basis. The European nations in the pilot program also committed to promoting multilateral automatic information exchange as the new global standard, a move lauded by GFI. Moreover, G20 Finance Ministers—a larger grouping of nations which includes all members of the G8—announced in April that automatic tax information exchange is “expected to be the standard,” added Lowe.
“With the endorsement today from G8 ministers, we hope they will move quickly to include developing countries in any system of automatic information exchange. GFI estimates that illicit financial flows—the proceeds of crime, corruption, and tax evasion—drain roughly $1 trillion per year from developing countries. This is one of the reasons why we were so happy to see the G8 recognize that ‘Developing countries should have the information and capacity to collect the taxes owed them – and other countries have a duty to help them.’ One of the best ways to help developing countries collect their taxes would be to include them in any multilateral system of automat tax information exchange.”
Corporate Tax Avoidance Unabated by G8
Despite committing to address the harms posed by individual tax evasion, GFI was critical of the U.S. and G8 for failing to embrace transparency to curb aggressive tax avoidance by multinational enterprises.
The G8 declaration notes that “Countries should change rules that let companies shift their profits across borders to avoid taxes, and multinationals should report to tax authorities what tax they pay where.”
“While we’re happy that the G8 acknowledges aggressive tax avoidance and profit shifting is a problem, they failed to agree to curtail it in any meaningful way,” commented Ms. Lowe. “This is one area where coordination of changes to legal systems is essential to combat the problem, and public reporting by companies of revenues, profits, losses, taxes paid and number of employees in each country in which they operate is necessary in order to see whether those measures are having the desired effect. It begs the question of whether the G8 countries have a sincere interest in knowing whether the new measures they plan to put in place will be effective, and whether they fully understand the public’s interest in being able to see that their governments have addressed the profit shifting phenomenon. Furthermore, simple publication of that basic financial information will very likely cause a company to consider whether it wants to take a very aggressive tax position if the results of its actions will be open to public scrutiny. There are some questions that a company is going to want to avoid, but the information has to be available to allow the public to ask those questions.”
Extractives Transparency Moves Forward
While GFI was critical of the G8 for failing to embrace transparency around corporate tax dodging and beneficial ownership information, the research and advocacy organization welcomed the endorsement of transparency for the extractives industries. The G8 declaration stated that “Extractive companies should report payments to all governments – and governments should publish income from such companies.”
“Transparency in the extractives industries is the new global norm, and we are heartened to see the G8 acknowledge this,” added Ms. Lowe. “The U.S. and Europe now have legislation requiring companies in the oil, gas, and mining sectors to report payments made to foreign governments, and Canada announced last week that they would introduce similar rules. Today’s statement signifies that the two remaining members of the G8—Japan and Russia—are also on board with this important anti-corruption initiative. It’s now up to mining heavyweights like China and Australia to move forward in adopting similar rules.”
Notes to Editors:
- To schedule an interview with Ms. Lowe, GFI Legal Fellow Joshua Simmons, or other GFI spokespersons, contact Clark Gascoigne at +1 202 293 0740 x222 (Office) / email@example.com. On-camera spokespersons are available in Washington, DC.
- Click here to read an HTML version of this release on our website.
- Click here to read the G8 Lough Erne Declaration published June 18, 2013.
- Click here to read the more detailed 2013 Lough Erne G8 Leaders’ Communiqué published June 18, 2013.
- Click here to read the “G8 action plan principles to prevent the misuse of companies and legal arrangements” published June 18, 2013.
- Click here to read the “United States G-8 Action Plan for Transparency of Company Ownership and Control” published June 18, 2013.
- Click here to read the “UK action plan to prevent misuse of companies and legal arrangements” published June 18, 2013.
- Click here for more G8 Lough Erne Summit documents.
- Click here to read GFI’s pre-G8 Summit press release.
+1 202-293-0740 ext.222
+1 202-293-0740 ext.227
Global Financial Integrity (GFI) is a Washington, DC-based research and advocacy organization which promotes transparency in the international financial system as a means to global development.
For additional information please visit www.gfintegrity.org.