It’s interesting to compare the way the UK and the US have interpreted the Lough Erne declaration on taxation. Given constitutional differences, individual countries have published their own action plans, and the lack of a language barrier makes the British and American ones readily comparable. (The declaration can be read here, the UK action plan here, and the US action plan here.)
The declaration and both action plans are fairly vague and open to legal interpretation, but there are some key differences. For instance, whereas the original agreement makes no reference to penalising companies that do not comply, both the UK and the US say non-compliance should be punished. The UK action plan says that “effective, proportionate and dissuasive sanctions should be available” which should be “robustly enforced”. The US plan, however, is arguably stronger, saying it will "mandate civil and criminal penalties for knowingly providing false information or documentation to a State or formation agent.”
On cracking down on the rules surrounding beneficial ownership, meanwhile, the UK builds upon the original proposals, saying that companies “should know who owns and controls them”, with information accessible to onshore authorities – something that “could be achieved” through central registries.
The US plan again seems to be stronger and more specific, defining a beneficial owner and how documentation should be collected and verified, extending anti-money laundering obligations to company formation agents (including “an obligation to identify and verify beneficial ownership information”) and suggesting that such information could be made publicly available.
However, the UK arguably wins out on its provision for international cooperation. Whereas the UK plan says that national authorities “should cooperate effectively domestically and across borders” and “ensure that their relevant authorities can rapidly, constructively, and effectively provide basic company and beneficial ownership information upon request from foreign counterparts”, the US plan meanders around the issue, saying it will “assess the effectiveness of existing means for complying with requests”.
There are concerns over the vagueness of the proposals and whether they will make any difference. ITV news business editor Laura Kuenssberg tweeted:
G8 declaration on tax says countries and companies 'should' do a lot to open up their books-not clear whether anything is remotely binding— Laura Kuenssberg (@ITVLauraK) June 18, 2013
And not everyone was happy with the direction of the agreement. Matthew Sinclair, chief executive of the TaxPayers’ Alliance, said:
This summit was a distraction which was never going to address the root cause of British public disquiet over tax avoidance: our hideously complex tax code.
The way to ensure that all companies and individuals pay their fair share of tax here in the UK is for the politicians at Westminster who created our tax system to simplify it by scrapping the loopholes they introduced and ensuring that tax rates are competitive. Only then will people again trust that everyone is paying what is due.
Transparency is important, on the part of both tax authorities and multinational companies. But it is also vital that there is tax competition between different nations, because that pushes down overall tax rates for families and businesses alike.