President Barack Obama at his press conference on April 5, 2016, where he called on Congress to pass legislation to combat the issue of offshore tax avoidance. Source: http://bit.ly/1Nm655O

Executive actions seek to close tax loopholes and put an end to an era of tax havens.

Rebecca Gilbert is the Campaign Coordinator for Oxfam’s inequality campaign.

The White House announced that President Obama plans to use executive action to increase transparency and close tax loopholes and to call on Congress to pass legislation to combat the issue of offshore tax avoidance. One such action is a final rule from the Department of the Treasury requiring financial institutions to disclose and verify their beneficial owners. It will make this information available to law enforcement in an effort to combat illicit financial flows.

President Obama is asking Congress to move on a number of other issues, including  passing legislation to give law enforcement better anti-corruption tools, approving eight tax treaties, and strengthening existing law to improve reciprocal transparency.

President Obama is taking a crucial step by calling on Congress to pass proposed legislation to increase financial transparency; but he can do even more. The Department of the Treasury’s “customer due diligence” rule does not require a standardized process for recording beneficial ownership information. In addition, the term “beneficial ownership” is not well defined in his executive action. It further falls short because, under the new rule, companies can list a senior manager, not an owner, as the primary name on the disclosure form when reporting beneficial ownership information to banks. This means that companies can comply with the Treasury’s proposed rule without technically reporting a beneficial owner. We hope the Administration and Congress will propose stronger due diligence requirements for major financial players to prevent the United States from becoming an even greater center for corrupt activity.

Tax abuse is rampant. Oxfam estimated that more than a trillion dollars is stashed offshore by the 50 largest US companies alone. That’s 100 billion dollars in lost revenue for the US government; money that would otherwise go to fix crumbling bridges or failing schools.

This is not the first time that President Obama has called for action to increase tax fairness. In April, he made some strong statements on tax he met with Chancellor Angela Merkel in Germany:

“As the world has been reminded in recent weeks, we need to close loopholes that allow corporations and wealthy individuals to avoid paying their fair share of taxes through tax havens and tax avoidance, trillions of dollars that could be going towards pressing needs like education and health care and infrastructure. But to do that, we have to work together.”

He also praised the Treasury Department’s recent regulations that would make the use of inversions, where US corporations say that they are based overseas to lower their taxes, increasingly difficult.

President Obama has indicated that these US companies “declare that they’re based somewhere else, thereby getting all the rewards of being an American company without fulfilling the responsibilities to pay their taxes the way everyone else is supposed to pay them”. 

In this new push, the administration has also proposed that all states require US businesses to obtain a tax identification number that the Department of the Treasury could share with law enforcement. If businesses are required by law to disclose their beneficial owners, they are less likely to abuse the financial system through the use of tax havens. 

But even as he took action, President Obama rightly stressed that this is a global issue, and it is crucial for people, small businesses, and multinational corporations to get a fair share of the productivity of each country. To allow everyone to get their designated slice of the economic pie, the United States, Europe and the rest of the world need to continue to implement banking and financial reforms to prevent another financial crisis.

And there’s good reason to. In January, we reported that only 62 human beings on this planet control more wealth than the poorest 3.5 billion, half of the world.  And the Panama Papers scandal put the spotlight on the shadowy world of anonymous shell companies. The Administration and Congress should work quickly to ensure that the public can know the beneficial owners of American companies. In the proposed legislation’s current state, it is likely that momentum will be created, but unlikely that true progress will be made. For change to occur, the Administration will have to propose strong rules that clearly define “beneficial ownership”, stress the importance of accurate and complete information, and make sure this information is made accessible to those who need it most. The time has come to enact tax policies that benefit families that work hard and pay their fair share of taxes.