Politicians, the very wealthy, big business and the huge industry of professional enablers who facilitate corruption and tax dodging would like you to believe that it’s incredibly difficult to fix our tax system and make banking and finance more transparent. It is not. There are solutions which policy-makers and regulators could implement today to build a tax and finance system which serves the interests of society as a whole.
Firstly tax is about much more than you might think. Take a look at our 4 Rs of tax:
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Yes, tax should raise Revenue for healthcare, schools, roads and other critical public services.
- But it should also Redistribute to make sure those who can afford a bit more contribute more than those who have less. This reduces poverty and builds fairer societies.
- And tax is a key tool for governments to Reprice key commodities to change consumer behaviour and shift markets. For example we know we must deal urgently with climate change – we can use taxes and subsidies to move markets away from polluting, carbon-intensive energy sources to cleaner, renewable ones.
- Lastly, in return for our taxes, citizens should expect Representation from their authorities. In building and sustaining healthy institutions, tax protects democracy and ensures those in power can be held to account.
In keeping with this the Tax Justice Network has three key policy calls, which we call the ABCs of tax transparency.
Automatic information exchange:
The exchange of financial information between jurisdictions (for example, about the bank deposits of a suspected criminal) used to be ‘upon request’. This process is cumbersome, and very little information was provided – especially not by those secrecy jurisdictions where criminal assets were often to be found. TJN proposed the automatic exchange of such information between jurisdictions, so that each year, a country would provide authorities in other countries with a list of their residents with bank accounts there, and the relevant tax information. Tax compliance is around seven times higher when taxpayers know that information on their incomes is automatically provided in this way – to say nothing of the impact on corrupt payments and other criminal transactions.
Beneficial ownership registers:
Historically, it has been easy to hide the real owners of companies, trusts and other legal vehicles in most countries. This ability to hide ownership not only allows outright tax evasion through the failure to declare, but also facilitates corrupt payments and transfers of ownership (directly enabling money laundering and terrorism), and the obscuring of corporate structures with implications for tax but also for market regulation (e.g. hidden monopolies). The Tax Justice Network proposed the establishment of public registers of the ultimate beneficial ownership of companies and trusts (that is, to identify publicly the warmblooded human beings who stand behind any given entity). Again, this is a technical proposal involving a significant shift of power, which was fiercely resisted by many.
Country-by-country reporting:
Multinational companies often ‘shift their profits’ artificially to low-tax jurisdictions to minimise their tax liabilities. The Tax Justice Network, in an initiative led by Richard Murphy, created an accounting standard for country-by-country reporting by multinationals. This requires the annual publication of the location of companies’ economic activity, profits and tax paid, making multinationals accountable to the public (as well as to tax authorities) for any misalignment between their profits and the location of their real activity, and tax authorities accountable to the public for their tolerance (or support) of such arrangements. This technical accounting exercise entails a powerful political shift – hence the resistance of multinationals and of the ‘big 4’ accounting firms that work for them.
We all need to be pushing the people who make the decisions in our jurisdictions for change which delivers on these principles. Every week the Taxcast discusses the key stories and topics with the most influential people in the sector. To build our influence and push for change, we need more listeners. You can help us get them – please:
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