On June 19th Swiss lawmakers voted down a bill that would have enabled Swiss banks to co-operate with US authorities in their pursuit of American tax dodgers. But automatic exchange of tax information now seems increasingly likely to become the global standard. As the summit opened, ten British dependencies with large financial sectors, including Jersey and the Cayman Islands, agreed to sign a multilateral convention on information-swapping. That was important for David Cameron, the British prime minister, who had been under pressure to show he was bringing Britain’s offshore satellites to heel.On tax avoidance by multinationals, the leaders endorsed an initiative by the OECD, which will be put to a G20 finance ministers’ meeting next month in which countries such as Brazil, China and India will also take part. The OECD reforms are intended to make it harder for firms to shift profits to low-tax countries. The G8 leaders also called on multinationals to make a full disclosure to the taxman over how much tax they pay in different countries.
The problems of “stateless wealth” and “stateless income” really do need to be addressed. There are two ways to do this, and they both have to be employed to deal effectively with the problem. First, as liberals and statists love to argue, we need to get better and more transparent information on who owns what and to make it harder to hide wealth under shell organizations and similar tax avoidance structures. This will not only bring more income into the tax system, but will also make life a bit harder for drug traffickers, terrorists and other criminals who want to exploit the dark crannies of the global financial system for devious purposes. The second step, which conservatives like and liberals generally don’t, is to reduce the excessive tax levels on both corporations and individuals that create huge incentives to move money around.The G8, not surprisingly, is much more interested in number one than number two. This is a misguided approach. Unless we do both at the same time, the problem is likely to continue.[Cayman Islands image courtesy of Shutterstock]