The growing international campaign against tax evasion

by Bruce Blonigen, Lindsay Oldenski and Nicholas Sly

Vox
November 26, 2011

The most recent G20 summit led to a multilateral agreement to facilitate information sharing between tax agencies, with the US currently negotiating bilateral tax treaties with the tax havens of Switzerland and Luxembourg. But before celebrations begin, this column points out that cracking down on tax evasion comes at a cost. International investment may well suffer.

One of the few solid agreements that came out of the latest G20 summit in Cannes was that governments will increase their cooperative efforts to curb tax evasion. The agreement, called the Convention on Mutual Administrative Assistance in Tax Matters, allows national tax agencies to request greater amounts of information from foreign governments on the activity of multinational enterprises and private citizens that are otherwise outside their authority to monitor. Under the new agreement, countries can choose voluntarily to transmit tax information about foreign parties in bulk to their resident country’s tax agency. There are also provisions of the convention that will require nations to assist in the recovery of foreign tax claims if a business or individual is in noncompliance.

Several leaders of G20 nations cited reports from the OECD that recent efforts to reduce tax evasion have resulted in more than $14 billion of additional tax revenue being collected, with hints that there are much greater amounts of offshore tax liabilities yet to be collected. With mounting government debt in most nations, the incentives for them to reduce tax evasion are clear. But if we take a closer look, this may be just the next step in the ongoing efforts of developed countries to recapture lost revenues by multinational firms. In particular, most bilateral tax treaties include similar requirements for cooperation in sharing of tax information between the two governments. The signing and renegotiation of tax treaties has proliferated in recent decades and Easson (2000) reports that there are nearly 2,500 treaties in force worldwide. The current US activity on tax treaties is also telling. The US Senate has pending agreements with Switzerland and Luxembourg, two countries that are typically on lists of tax havens, and in June of this year the US Treasury Department announced a plan to renegotiate its tax treaty with Japan, where provisions for information sharing are relatively weak. Deterring tax evasion has long been a priority for governments in coordinating the international tax system.

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