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UK: U.K. to Crack Down on Tax Evasion in Developing Countries

by Laurence NormanWall Street Journal
January 26th, 2010

The U.K. government will on Wednesday set out proposals to broaden the crackdown on tax evasion to benefit developing countries, setting a year-end deadline for a U.K.-led multilateral tax-information-sharing accord with emerging nations.

In an interview, Stephen Timms, the financial secretary to the Treasury, said that in a speech to the Organization for Economic Cooperation and Development on Wednesday, he will urge other developed nations to follow the U.K. lead. That could eventually open the way for multination tax-information accords, which would include former tax havens, developed and developing nations.

The broadening out of the Group of 20 tax crackdown comes after the signing of more than 100 OECD-approved bilateral tax-information accords between tax havens and developed nations over the past year. The accords, which have sometimes seen tax havens ditch bank-secrecy laws, came after the Group of 20 placed the issue centerstage during the economic crisis of 2008, as Treasurys sought to replenish depleted government coffers.

As far back as at the April G-20 summit in London, the G-20 promised to broaden this effort to help developing countries scoop up unpaid revenues. However little progress has been made and "it's now a question of actually delivering on what we promised," Mr. Timms said. "The immediate priority is getting a multilateral agreement signed so that developing countries do have access on request to the kind of information that they need."

Mr. Timms said a recent U.K. government study had suggested developing countries lose out on upwards of $50 billion annually in evaded tax, a sum several times larger than the U.K.'s entire 6 billion ($9.7 billion) aid budget.

In his speech, Mr. Timms plans to say he will write to developing countries in early February to invite them to sign up to a multilateral accord. He will urge other developed countries in Wednesday's speech to seal their own multilateral deals this year. Mr. Timms said this would avoid requiring "thinly-stretched developing countries to negotiate lots of bilateral agreements."

Mr. Timms said he would also lay out other ideas Wednesday for ensuring developing nations can capture taxes owed them. He will call for fresh work on automatic exchange of tax data, where data is handed over without a specific request being made. He will also announce a meeting in London later this year to work on providing technical assistance on tax collection for developing nations.

Following a report commissioned by French President Nicolas Sarkozy and U.K. Prime Minister Gordon Brown, he said he will urge the OECD to design best practice for multinational companies pushing them to carry out so-called country-by-country reporting. This requires companies to report their profits on a country-by country basis, making it easier for developing government to get what's owed them.

Mr. Timms, the point man for the tax haven-crackdown during the U.K.'s presidency of the G20 last year, said he was pleased with progress made in pushing tax havens to provide more information to developed countries over the last year. He said more progress had been made in the last 12 months than in the last decade. "Through the G20 work and with the help of the OECD, we have made sure that tax evaders have got fewer and fewer places to hide," he said.

The U.K. has signed a number of accords with the likes of Liechtenstein, the Bahamas and the British Virgin Islands, moves the treasury says will raise several billion pounds.

However Mr. Timms said it was still possible sanctions could be imposed on jurisdictions that haven't made enough progress on eliminating bank secrecy when the G20 deadline expires in March. "I'm not sure everybody is quite at the mark yet," he said.

And Mr. Timms said the G20 will need to look again at the current OECD information-exchange standards to see if they are tough enough to ensure that individuals and companies can't use low-tax jurisdictions to stash away cash.

"I think everybody is going to want to take stock of how the TIEAs [tax-information accords] have worked," he said. "I would certainly expect the standard to develop...[to] become more demanding."





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