Mark Bou Mansour ■ A watershed year for tax justice and the road ahead
The year was a watershed moment for tax justice. Elements of three of the Tax Justice Network’s long-time recommendations, which detractors argued could not be achieved, became a reality, making it much harder for multinationals and unscrupulous individuals to hide their profits and wealth. The Panama Papers leaks put tax havens and financial secrecy in the hot seat, sparking public outrage across the world and lighting a fire under policy makers and tax authorities to rein in rampant tax avoidance. Looking to more recent developments in 2018 and the road ahead, it is clear that momentum is rapidly accelerating across the world for fair tax systems that benefit us all.
Three important steps forward for tax justice in 2017
The policy framework that the Tax Justice Network laid out in 2003 to 2005 centred on what we now call the ‘ABC’ of tax transparency: automatic exchange of tax information, beneficial ownership transparency and country by country reporting. At the time, if international policymakers were even willing to listen, they would need each of these ideas explained – and would then dismiss them as utopian and impossible to implement.
Ten years later, in 2013, the ‘ABC’ came to form the basis of the global policy agenda – at the G20, G8 and OECD groups of countries. In 2017, three monumental steps were taken on automatic exchange of information and beneficial ownership transparency.
The automatic exchange of banking information between tax authorities became standard practice at a global level for the first time in history, making it much harder to hide money from government by moving it to another country. If a person in Germany has a bank account in Switzerland, the German tax authorities will now be automatically informed about it. Previously, the tax authority would have had to file a formal request for information that may or may not have been accepted.
One of the key obstacles that sought to delay the implementation of automatic exchange of information at a global level was the argument that the practice was just too difficult and complicated to implement. In 2017, 49 jurisdictions automatically exchanged information and 53 more committed to doing so in 2018. Argentina alone received information on over 35,000 banks accounts. Not only is the practice feasible, the appetite for it is great.
The two other important steps taken forward relate to the transparency of beneficial ownership. The EU Parliament and Council closed one of the key loopholes that enables financial secrecy by requiring each EU member state to create a public record of companies’ beneficial owners.
A beneficial owner of a company is the real person, made of flesh and blood, who ultimately owns the company, controls it and/or receives profits from it even though the company legally belongs to another person, like a broker or a shell company. Companies must typically register their legal owners, but not necessarily their beneficial owners. In most cases, a company’s legal owner and beneficial owner are the same person. But when they’re not, beneficial owners can hide behind legal owners, making it practically impossible to tell who is truly running a company and profiting from it. Mossack Fonseca, the offshore service provider at the centre of the Panama Papers scandal, did not know who the beneficial owners are of more than 70% of the 28,500 active companies it provided services to, despite serving as legal owners on some of those companies. The new level of transparency will make it much harder for multinationals and unscrupulous individuals to disguise their ownership. Now the rest of the world must follow.
Following its investigation into the Panama Papers, the EU Parliament’s investigative committee has called for governments to recognise any person who owns or controls a single share in a company as a beneficial owner of that company, not just individuals who own more than 25 per cent of shares in the company. Proposed by the Tax Justice Network 15 years ago, this move can stop an individual from being able to hide their true ownership of a company by, for example, registering a spouse and family members as owners each of a smaller proportion of a company’s shares.
Progress was made on other fronts as well in 2017. The Tax Justice Network organised an international letter-writing campaign to the UN Secretary General that saved the UN’s commitment to curtail illicit financial flows committed by multinational corporations. We helped launch Tax Justice UK, an independent campaigning and advocacy organisation that aims to make sure everyone in the UK benefits from a fair and effective tax system. The Bogotá Declaration on Tax Justice for Women’s Rights was launched, demanding an end to regressive tax systems that deny women their human rights. To date, 150 organisations have signed the declaration. A powerful movement is now coming together to challenge the damage to women’s rights that results from a failure to obtain tax justice.
Our 15th anniversary and the road ahead
2018 marks 15 years of Tax Justice Network – 15 years of fighting tax abuse, financial secrecy and the race to the bottom on taxation and regulation that result in a globalisation characterised by extreme inequalities both between countries and within countries, and the shameful and entirely unnecessary violations of human rights that follow inevitably from these inequalities. 2017 is just one of 15 years of the most remarkable progress for the tax justice movement.
A fourth important step forward on the ‘ABC’ of tax transparency was announced in 2017 and acted on, in part, in 2018. Vodafone voluntarily committed to publicly publishing the country by country report they will need to file under new OECD guidelines. Country by country reports require multinational corporations to detail where their economic activity takes places and where their profits are claimed. The accounting practice is designed to expose the mismatch between where companies are making profits and where they are paying taxes on those profits.
Ahead of the new guidelines, Vodafone compiled and published its own country by country report this year. Vodafone’s poor tax behaviour in the past makes the move all the more encouraging, hopefully marking the turning of new leaf not just for the corporation but for wider consensus on tax responsibility in the corporate world. We will be publishing analysis of Vodafone’s report soon.
We still have much further to go, of course, and the progress made must be defended every day against those who would push back. 2017 marked a global shift in attitude on tax justice. In the early 2000’s being involved in offshore financial activity was a normal part of good business, and minimising tax was simply regarded as smart behaviour. In 2017, Prime Ministers and Chief Executives resigned because of it.
View the Tax Justice Network’s annual reports.
Beneficial ownership verification: exploring Belgium’s sophisticated system
Some things never change: the use of Swiss banks by crooks
The US beneficial ownership law has its weaknesses, but it’s a seismic shift
Argentina keeps pushing to be at the vanguard of transparency. Now they need to make more information public
How a mini movement overturned secret US shell companies
Taxing Wall Street: the Tax Justice Network December 2020 podcast
The UK’s #ImperialInequalities: Past, present and future
$427bn lost to tax havens every year: landmark study reveals countries’ losses and worst offenders
The State of Tax Justice 2020
20 November 2020