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Tax Avoidance and Evasion

I genuinely do hope to come to that point at the end of my speech and I hope that my hon. Friend will be able to stay until then. The problems of capital flight and the financial crisis show clearly that the complexity of global financial flows has grown far beyond the ability of Governments—any Government—to monitor and regulate them effectively. The fight against poverty demands an end to the secrecy surrounding tax payments made by multinationals to poor countries' Governments. The International Accounting Standards Board provides the framework for regulation in this area and should require multinationals to report the scale of their economic activity and the taxes paid in every single country in which they operate. That would enable sovereign Governments and civil society to ensure that multinationals paid the right amount of tax in the right place at the right time. Many investors are also keen to have that information, which allows a much closer understanding of the risk associated with investments. Such reform of global accounting practices would also promote the concept of ethical investment, which is regarded in many quarters as oxymoronic. Christian Aid and others, including ActionAid, are calling for two key measures of global financial regulation: first, an international accounting standard on country-by-country reporting to provide investors, regulators and tax authorities with a powerful indicative tool to assess risks and highlight abuses; and, secondly, automatic tax information exchange between all jurisdictions, including tax havens, based on a global agreement, instead of a piecemeal approach involving bilateral treaties, which have been shown to have limited impact and tend to exclude developing countries. The London summit not long ago—the G20 meeting—delivered significant progress towards financial transparency. Indeed, for the first time, the Prime Minister publicly acknowledged the link between tax evasion and development. Prior to the G20 meeting, he stated:""we will also set down new measures to crack down on those tax havens that siphon money from developing countries, money that could otherwise be spent on bed nets, vaccinations, economic development and jobs."" However, the measures proposed by the G20 are agreements on sharing bilateral tax information between tax havens and wealthy countries that have the economic and political muscle to negotiate. They are rushed measures; they do not help the developing world and will hinder tax investigators in countries such as the United Kingdom. Tax information exchange agreements—TIEAs—as proposed by the G20 and the OECD, are of limited value to developing countries. First, only the richest countries have the economic power to negotiate such agreements and gain speedy access to the necessary information. Using a bilateral model, if only UN member countries had fair access to tax information, each of the 192 countries would have to sign 192 information exchange agreements. I know, Mr. Hancock, that you are good at mental arithmetic: 192 squared would mean a total of 36,864 agreements globally. There are between 50 and 72 tax havens in the world, and more than 100 countries with which they could negotiate TIEAs, so that is potentially more than 7,200 bilateral agreements. However, by March 2009, only 49 TIEAs had been signed between OECD countries and secrecy jurisdictions, and only 18 have entered into force. The second reason why TIEAs do not work is that poor countries do not have the power to offer strong sanctions on their own, and thus cannot access the information that they need through that channel. The proposed agreements enshrine "on request" information sharing. If a poor country wants information on a tax payment, it will need to provide significant evidence that criminal activity is occurring, but it simply will not have the resources to conduct such investigations.