When the Finance Bill is put to the House for its second reading next Wednesday, there will be at least on large yawning void. That is how the clear commitments given on tax havens by the G20 in their 2 April communique are actually to be implemented. The text said that the G20 leaders agreed “to take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over”. Stirring stuff. But what sanctions do they have in mind? Not a word about in the Finance Bill. And there is another whopping big hole in the G20 implementation plan. It only applies to individuals: they totally ignored corporate tax avoidance. This is a massive gap, which is unlikely to be inadvertent.

The basis of the G20 declaration was the 2002 OECD Model Tax Convention. It encourages nation states to sign its Tax Information Sharing Agreement through a series of bilateral, not multilateral, treaties. This is problematic. Each treaty has to be ratified by the parliament of the respective countries. Some of the poorer developing countries may not have the technical expertise to negotiate a treaty with larger or richer nations. And because of organised tax avoidance by transnational companies, many developing countries may not have effective tax administration structures to request the relevant information. There is a further problem too: can sanctions, if ever they were imposed, be applied to countries that are not OECD members?
The OECD is also set around with other conditions and requirements which make it difficult to enforce (perhaps deliberately so?). The framework is anything byt open and transparent. A state has to make a detailed case for requesting information from other signatories to the framework, including demonstrating the relevance of the information requested. This is bound to be time-consuming and expensive, especially when tax avoiders have gone to considerable lengths to shroud their tax avoidance in secrecy and opaqueness.
But the biggest flaw remains the restrictions to individuals. So British citizens could therefore dodge their tax liabilities simply by making investments through corporate entities that are domiciled in tax havens even though they might trade and have directors in the UK. Since it has been estimated that the Exchequer loses revenue to the tune of £25bn a year from tax avoidance, half of which is at the hands of companies through complex corporate structures, transfer pricing and royalty programmes, this is a massive loophole. If the G20, or indeed Britain in its own right, is to serious in targetting tax havens and closing them down, it requires much more systematic, comprehensive and detailed formulation of the rules before the power of global tax avoidance is broken.

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