G20 must halt global game of tax avoidance by fighting anonymous shell companies and tax havens

Mention financial secrecy at the dinner table ten years ago and you would most likely have been greeted with a blank stare.

Tax evasion in particular was a subject matter deemed largely the preserve of accountants and frustrated FBI men seeking circuitous ways to prosecute mobsters.

These days, though, the legal and illicit methods people use to hide their money are part of household conversation. Labyrinthine tricks used by the likes of Google, Starbucks and Amazon to reduce their tax bills have sparked outrage.

Even personal tax reduction schemes used by celebrities such as comedian Jimmy Carr and members of pop group Take That have proved damaging to their celebrity brand. And yet while countries such as Britain lose out from financial secrecy, the real victims are largely voiceless.

Take taxation for instance. In rich countries, which largely have well-developed revenue and customs infrastructure, about 30 per cent of GDP comes from tax collection, according to the Organisation for Economic Co-operation and Development.

That figure falls to 13 per cent for low-income countries and not because they levy tax at a lower rate. The old adage runs that teaching a man to fish helps him feed his family for a lifetime. Many countries haven’t even got a functioning net.

When the G20 leaders meet in Brisbane, Australia, in November, geopolitical turmoil in Russia and the Middle East will no doubt be foremost in their minds. But they also have the chance to follow through on efforts in recent years to crack down on companies and individuals hiding their cash offshore.

Illicit financial flows cost the developing world up to a staggering $2trillion a year, according to a report by campaign group ONE. Using methodology that draws on a range of international authorities and campaign groups, it estimates that this money could be used to prevent 3.6million deaths between 2015 and 2025.

ONE is calling on the G20 to take action in four key areas in a bid to remove the handicaps inherent in the global financial system that stop the poorest nations from standing on their own two feet.

The first area is one where Britain has taken a leading role – anonymous shell companies.

As this newspaper reported last year, former Ukraine president Viktor Yanukovych owned his opulent presidential mansion via a web of shell companies including one, Blythe (Europe), based in London’s Harley Street.

An elaborate multi-layered structure, which also included shell firms in Liechtenstein and Austria, made it all but impossible to trace the owners of these companies. In the US it is possible to set up shell companies like these with less identification than you need to get a driving licence.

The state of Delaware is a veritable mecca for this sort of activity. This, says ONE, allows rich and powerful people to use their financial muscle to hide their money, disguise corruption and even cover up the funding of terrorism.

Some $3.2trillion of undeclared income originating in the developing world is stored in tax havens, money that could raise about $19.5billion a year if taxed, based on data from the IMF and the Bank of International Settlements.

Prime Minister David Cameron has pledged to set up a register of company ownership to prevent such secrecy. The G20 is being urged to convince more secretive members such as Saudi Arabia to follow suit.

Substantial progress has also been made towards convincing companies to publish what taxes they pay in every country in which they operate.

European countries, including the UK, are already moving in this direction and greater adoption by the G20 could set an example around the world. Brisbane provides an opportunity to put pressure on Australian prime minister Tony Abbott, a friend of miners who this week repealed a tax on the industry.

On tax evasion, the developed world already appears to be on the case, or at least aware of it. Politicians have already secured automatic exchange deals that have forced countries such as Switzerland to disclose details of citizens stashing taxable income there.

Swapping data has already helped the UK recoup £1.2billion from these accounts, albeit £2billion less than expected. But developing countries, most of which lack the capability to chase funds stored abroad, are largely excluded from these arrangements.

The G20 could address this with a joint commitment to exchange information with these countries. Finally, and perhaps the most challenging demand, the world’s leading economies are being asked to publish more data on how money is spent.

The idea is that it would then be easier to encourage these standards in countries where corrupt officials benefit from relative obscurity to appropriate badly-needed state funds.

With financial secrecy becoming ever more high profile, politicians are keen to pay lip service to standards of transparency. Brisbane affords an opportunity to put their money where their mouth is.