June 28, 2012 / 2:54 PM / in 5 years

Tax evasion fight starts to bare its fangs

JOHANNESBURG (Reuters) - Some of the money Africa loses through artful officials diverting cash into offshore tax havens could be recovered after a push by the world’s richest countries to share tax data.

The initiative, unveiled quietly in a report last week by the Organisation for Economic Co-operation and Development (OECD), embraces the notion that countries should automatically share data on taxable income and assets.

It sounds like arcane accounting talk but it boils down to this: if countries automatically share such as information, tax dodgers will find it far more difficult to hide their earnings from their governments.

Among other things this will help reduce Africa’s reliance on foreign aid since the region could collect more of the revenue that it generates, cutting its need for assistance.

“Automatic exchange as a tool to counter offshore non-compliance has a number of benefits,” the report, ‘Tackling Offshore Tax Evasion,’ said in what some commentators are hailing as a sea-change in the OECD’s position on the issue.

This is because when it comes to agreements regulating issues of tax compliance between countries, the Paris-based OECD club of rich nations has long contended the “internationally agreed standard” for information exchange was “on request.”

Critics have called this approach toothless because a government would have to know in advance what it was looking for if it suspected one of its residents or citizens of avoiding taxes by moving or keeping money or investments offshore.

Making such information automatic gives fangs to the fight against tax evasion, which has been sucking poor regions dry.

Capital seepage, which is bolstered by the existence of tax havens which include the City of London and Caribbean islands, has been a major obstacle to Africa’s development.

“This could go a long way to reducing Africa’s dependence on foreign aid and allow it to fund its own expenditures with the income of its own wealthy residents,” Nicholas Shaxson, the author of a best-selling book on tax havens, told Reuters.

“The money can still move overseas but governments will be able to tax the income, which they can’t at the moment,” the Swiss-based researcher said in a telephone interview.

A total global system where automatic exchange of tax information is the norm is still a long way off and poor African states would have technical challenges meeting such a goal.

OECD officials say it will be up to individual countries to sign up to such initiatives but peer pressure and naming and shaming could be tools down the road to get countries to comply.

PETROL STATES MAY NOT COMPLY

Some experts also note that where governments themselves stand accused of graft on a grand scale, such as the oil-rich African nations of Angola and Equatorial Guinea, such a policy may have little impact.

“In the places where the people who are putting the money offshore are running the government, the point is rather moot. Angola is going to continue to be an issue, Equatorial Guinea is going to continue to be an issue,” said Heather Lowe, director of government affairs at Washington-based anti-graft watchdog Global Financial Integrity.

“But there is scope for improvement in countries that have a better governance structure,” she said.

The drive on “automatic information exchange” - or AEI in the terminology of those who comment on the issue - seems to have serious political backing.

“The OECD would not put something out that the OECD member countries had not blessed,” said Lowe. Pointedly it also received backing by G20 leaders meeting in Mexico last week, which should give the drive momentum.

Africa is bleeding money to such an extent that a book published earlier this year makes a compelling case that the world’s poorest continent is a net creditor to the rest of the world and should not have to pay “odious debt”.

The amount of money in tax havens has been estimated at $11.5 trillion by the Tax Justice Network, a respected and independent advocacy group that monitors such trends.

The OECD recently said that the proceeds from financial fraud, tax fraud and money laundering equaled about 3.6 percent of global gross domestic product.

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