The recent journalistic scoop on the dealings of Panama-based law firm Mossack Fonseca and its clientele continues to cause reverberations around the world and has catalysed public anger on the excesses of some of the wealthiest people in the world and their efforts to hide their riches (ill-gotten or otherwise) from the tax man. The problem of tax collection splits into two areas, tax evasion (which is illegal) and tax avoidance which uses latitude within the tax codes in a country (or between countries) to minimise tax liability. Public ire is triggered in the second case when tax avoidance strategies are so successful that major businesses pay only a tiny contribution to the exchequer despite very significant (and evidently profitable) business activity in a given jurisdiction (such as the £4327 corporation tax paid by Facebook in the UK).
To give an indication of the extent of the problem, the parliamentary Public Accounts Committee reckons that the UK exchequer loses £16 billion a year to tax evasion (not avoidance) and fraud. This is roughly 1/6th of the money spent on the NHS in the UK each year.
An announcement has been made by finance ministers from the UK, Germany, Spain, France and Italy (the five largest economies in the EU) at the IMF spring meeting on heightened cooperation on sharing information on the owners of businesses and trusts. The aim is to make it more difficult for wealthy individuals and businesses to dodge paying taxes. The five nations hope that the initiative will be adopted across the G20 in due course.
Speaking at the IMF in Washington, the UK Chancellor, George Osborne, noted: "Today we deal another hammer blow against those who hide their illegal tax evasion in the dark corners of the financial system. Britain will work with our major European partners to find out who really owns the secretive shell companies and trusts that have been used as conduits for evading tax, laundering money and benefitting from corruption. It is Britain and our European partners setting the pace on beneficial ownership transparency of not just companies but also trusts with tax consequences - and I expect that the rest of the world will move to follow our example. It shows the benefit of working together. No single country can tackle international tax evasion alone - and Britain should never fool itself into thinking that it can do this by itself."
The obvious elephant in the room is that major governments do already have the legislative powers to close many of the tax loopholes permitting tax avoidance in their jurisdictions and should be urgently reviewing tax regulations to ensure that they remain fit for purpose.