Group of Seven nations agreed on the need to toughen international rules to prevent rich individuals and corporations avoiding taxes, with greater efforts to prevent tax evasion that deprives governments of billions of dollars.
The G-7’s European members -- the U.K., France, Germany and Italy -- will this week press fellow European Union nations to sign up to the Savings Directive with the aim of improving information sharing to clamp down on tax avoidance. The G-7 will also seek the engagement of emerging economies on tax evasion.
“It is incredibly important that companies and individuals pay the tax that is due and this important not just for British taxpayers but also important for many developing countries as well,” Chancellor of the Exchequer George Osborne said yesterday after two days of talks with G-7 counterparts in Aylesbury, outside London. “We all agreed on the need for collective actions to tackle tax avoidance and evasion.”
The informal discussions by finance chiefs aim to pave the way for more concrete steps at other international gatherings such as the Group of 20, as rich nations’ treasuries seek to show voters that they are taking steps to combat abuse. Google Inc. is due to testify to British lawmakers on May 16 as it aims to justify its global tax affairs.
EU finance ministers will meet on May 14, and signing the directive would help national tax authorities fight evasion, an illegal activity.
“We Europeans used the opportunity to seek support for our initiative to fight both tax evasion and tax avoidance,” German Finance Minister Wolfgang Schaeuble told reporters in Aylesbury.
The EU moved closer to agreement last month on a coordinated clampdown on tax evasion as nine countries backed an initiative for automatic sharing of bank details across borders.
The bloc’s six biggest nations won support from the Netherlands, Belgium and Romania for their proposal to adopt the U.S.’s FATCA information-exchange program. The 27-nation EU is closing in on an updated savings-tax accord as holdouts Luxembourg and Austria show a willingness to compromise.
G-7 finance ministers and central bank governors meeting in England discussed the need to strengthen the crackdown on tax evasion and combat money laundering, “and there was a broad consensus to exchange information among national tax authorities,” Italian Finance Minister Fabrizio Saccomanni told reporters.
The U.K. has signed agreements with territories including Anguilla, Bermuda and the British Virgin Islands to fight tax evasion. Osborne said last month that Britain’s tax authorities had increased the amount of money collected from wealthy individuals by 10 percent.
“We are not going to decree an end to tax havens but we will start a movement,” said French Finance Minister Pierre Moscovici. The G-7 agreed “to push tax evasion back in a decisive manner. There’s a political will which is in motion and it will not stop,” he said.
The Paris-based Organization for Economic Cooperation and Development is taking the first steps toward reform at the request of the G-20 and has released a report criticizing corporate profit shifting.
The drive to squeeze more tax from large corporations and the rich that either violate rules or go against their spirit comes as governments cut services and raise taxes on working people to tame outsized budget deficits.
The EU’s 27 states had a combined budget deficit of 521.6 billion euros ($678 billion) as of the third quarter of 2012, according to Eurostat. The U.S. faces an $845 billion gap deficit in 2013, according to the Congressional Budget Office.
Since November, the U.K. Parliament has held two hearings on corporate tax avoidance, questioning executives from Google, Amazon.com and Starbucks Corp., as well as tax officials from accounting firms Ernst & Young LLP, PricewaterhouseCoopers, Deloitte LLP and KPMG LLP. Executives from the companies and the accounting firms defended their practices and denied wrongdoing.
In December, the European Commission, the EU’s executive body, advised member states to create tax-haven blacklists and adopt anti-abuse rules. Tax avoidance and evasion cost the EU 1 trillion euros a year, the commission said.
“There’s no doubt that as you look at balancing budgets to the degree you need more revenue” that lawmakers will need to look to the wealthy “to get a little bit more from them proportionately than you get from people as a whole,” Microsoft Corp. co-founder Bill Gates said in an interview with Bloomberg Television on May 10. “I think that’s pretty likely.”