One year on from the leaking of the Panama Papers, Oli Pearce, Policy Manager at Oxfam GB, explores how well the UK is dealing with tax avoidance.
If a week was a long time in Harold Wilson’s politics, then a year in the era of Trump’s tweets is something else. The election of Donald Trump to the American presidency and the vote for Brexit in the UK have thrown national and international politics into somewhat more turbulent times. But it is worth pausing for a moment to look at one of the issues that garnered much public interest a year ago, and still leaves a lot to play for: tax avoidance.
On April 3 2016, the Panama Papers revealed that many rich people around the world used Mossack Fonseca to help them set up companies and accounts to hide their wealth from tax authorities. Organisations like Oxfam have been campaigning for years for tax justice but it had often been hard to make the issue top of the political agenda and create pressure through the media. But the hundreds of thousands of companies revealed in Panama Papers did just that. The effect was both direct and diffuse: some individuals named in the files were asked awkward questions (for example leading to the resignation of the Icelandic prime minister) but bigger questions nagged decision-makers: how could tax rules allow this to happen?
The UK government hastily reconfigured its Anti Corruption Summit the following month: tackling tax avoidance was now top of the agenda. Oxfam and others pointed that the rich and powerful named in Panama Papers used the same mechanisms of secrecy, offshore companies and intermediaries as outright illegal peddlers of tax evasion, money laundering and the like. The processes themselves are corruptive, rewarding those who enrich themselves further by exerting their influence. Very laudably, the UK government led the way at the summit, not only signing up to all the commitments, but encouraging other governments to go further and faster. In June, the UK became the first country to establish a Public Register of Beneficial Ownership, perhaps the key tool to help prevent wealthy people hiding their true identity behind layers of companies. A number of countries have followed suit and many more are also not only collecting this information but sharing it with other countries. NGOs continue to call for these registers to be public so that everyone – rich and poor – can scrutinise them.
But the progress in the UK’s Overseas Territories and Crown Dependencies (places like the British Virgin Islands- the destination of choice for Mossack Fonseca’s clients) has been much slower when clearly many of them are at the centre of tax avoidance. Whilst these UK-linked tax havens will now be required to collect such information and share it with UK authorities, they won’t need to have public registers. To address tax avoidance, it is simply unclear why lower standards are appropriate for the very places favoured by tax avoiders. Particularly for developing countries, where most tax authorities will not be able to access relevant information from other countries, this progress is nearer an empty glass than one half full. Transparency is only really powerful if it is applied consistently and is seen to be applied, otherwise we all start to question the system.
Similarly, the UK government itself accepted a cross-party amendment to its Finance Bill which now confirms that it has the power to implement public Country by Country Reporting – a transparency measures which requires companies to publish the amount of business they do and taxes they pay everywhere they operate. So far, no country has actually implemented this measure, though the EU is considering it. EU countries are broadly split, with the UK one of the keener champions. But if the EU process falters, will the government go ahead anyway? The Ministers responsible, David Gauke and Jane Ellison have hinted as much but we’d like a public (natch) commitment with a clear timeline. This would represent the kind of Global Britain leadership the Prime Minister commends.
These are the challenges for the UK government on the anniversary of the Panama Papers: to ensure that tax havens flying the Union Jack comply with the same standards on transparency as the UK; to commit to introducing public Country by Country Reporting within the next two years, either alongside other governments or leading by example; and to overcome the inequality of information gap that means poor countries don’t have the same evidence of tax avoidance as rich countries do. The UK government should also be complementing its leadership on tax transparency with a call for further cooperation to tackle the frailties of our international tax system exposed by the Panama Papers.