Study Guide Group of 20 Authors: Viet Duc Nguyen Georg-August-Universität Göttingen Anne Reinhard Georg-August-Universität Göttingen Thomas Michaelis Georg-August-Universität Göttingen THE GROUP OF 20 The Group of Twenty, also known as the G20, is a global forum, where Representatives of the twenty largest economies gather every year to promote financial and economic stability across the world. These major economies seek to affirm and discuss policies that aim to achieve sustainable growth across the globe. The forum has gained prominence and global recognition, especially as the G7 members realized the need for a more inclusive economic forum, among which would also be the rising economic powerhouses such as Brazil, India, Mexico, South Africa, Turkey and others. Even though the G20 does not have any formal authority to enforce its decisions or member’s pledges, the forum still presents an opportunity for members to influence global policy through discussion and cooperation with other members. The impact of the G20 summits should not be underestimated; numerous global issues have been solved within the framework of the Group of Twenty. The aims of the G20 go beyond simple policy recommendations, at every annual meeting, the leaders of the G20 nations attempt to find a common economic understanding and framework for dealing with a recent crisis or a threat to global economic growth. Each country present at the summit has to consider both national and global interests when finding a common solution. There may be a clash of interests, since countries might have ongoing rivalries or economic competition, however, these clashes of interests can, and have been resolved through diplomacy and cooperation at past summits. The agenda of the summit may change depending on circumstances, so the Group of Twenty may address a wide variety of different issues and global problems in each summit, ranging from climate change to underemployment. The group also addresses and tries to focus on social and environmental issues, since they are indirectly or directly related to economic life in one way or another. 2 Table of Contents I. INTERNATIONAL TAX EVASION 1. Introduction to the Topic 2. The issue of International Tax Evasion 2.1 Basic Terminology 2.2 Methods of Tax Evasion 2.3 Consequences of Tax Evasion 2.4 Case Study 3. Major International Actions and Relevant Actors 4. Major Actors and Problems that arise 5. Questions a Resolution Must Adress 6. Useful Resources and Links II. FOOD SECURITY 1. Introduction to the Topic 2. Definition 3. Who is affected by food insecurity? 4. Problems and Solutions 4.1 Biofuels 4.2 Food Production 4.3 Environmental Impact 4.4 Food Prices 4.5 Economic Impact 5. What the Group of 20 has done so far 6. Possible Solutions 7. Questions a Resolution Must Adress 8. Useful Resources and Links 3 I. INTERNATIONAL TAX EVASION 1. Introduction to the topic In the modern economy the state has numerous responsibilities: the promotion of economic growth and development while achieving competitiveness on the international market, the successful allocation of the country’s resources in an efficient manner, the provision of basic goods and services to its citizens, such as security and education, and the maintenance of the necessary infrastructure. Naturally, all these responsibilities result in huge costs and require a lot of personnel. The most important tool for covering all these measures and issues is taxation. Since the state operates on behalf of its citizens, it is only logical that each citizen has the obligation to contribute to the state, to ensure its efficiency. Therefore, each time citizens are taxed (i.e. are obliged to pay a certain amount of money to the state), they are actually helping themselves (at least theoretically), as the state can use this money to provide services to the citizens and improve its finances. Consequently, the usefulness of taxation is out of the question, as it forms a large part of a country’s economy and cannot be omitted. However, things are never as easy as they sound. Tax law is a very complex aspect of a country’s legislation, as it usually is thousands of pages long, and unfortunately the enforcement of this law is even more complicated and challenging. Taxes themselves are a more or less fair principle, as everyone, including individuals and corporations, are obliged to pay their share to the country, i.e. a part of their annual income and consumption. Unfortunately, there are always people who choose to break or bend the law and ignore their basic obligations by refusing to pay taxes or by only paying parts of their taxes. The act of avoiding the payment of taxes is our topic: tax evasion. In most cases tax evasion constitutes a willful infringement of a country’s legislation and is punishable by the respective law of each country. The problem is, that it is extremely difficult (if not impossible) to catch all tax evaders, since in today’s globalized world tax evaders have found many ways to cover their tracks and, as a result, many of them get away with their actions. It is obvious that this is unfair towards regular tax payers. Each sovereign state has a legitimate interest in closing tax loopholes and preventing tax evasion. The purpose of this study guide is to analyze the various techniques used by tax evaders and to propose measures how it might be possible to combat tax evasion through national efforts and international cooperation. 4 2. The issue of International Tax Evasion 2.1. Basic Terminology In recent political discussions concerning international taxation there seems to be confusion on many technical issues and terms. In the next part we will briefly explain and differentiate between the main concepts and terms. Tax Evasion Tax evasion is defined as any activity which is intended to reduce the individual tax burden. This might involve other illegal actions like theft, fraud, or forgery in relation to tax, or specific statutory offences of tax evasion, depending on the jurisdiction concerned. Tax evasion typically involves the misrepresentation of the facts to the revenue service by deliberate or reckless concealment or omission. Tax Avoidance Tax avoidance involves the arrangement of a taxpayer’s affairs in a way that allows the individual or corporation concerned to claim a reduced tax rate. Finding tax “loopholes” is an example, but corporate profit shifting activities also contribute to tax avoidance. Tax Haven The term is used to describe jurisdictions with low or non-existent rates of tax. Most examples of Tax havens are countries, which have few or no natural resources and use their tax code to incentivize the deposition of money in its jurisdiction. Additionally many tax havens make it fairly easy to create shell companies, which serve to conceal the identity of the individual or corporation behind a deposit. Tax havens do also make it very hard, if not impossible to exchange information about taxable assets from foreign nationals in its jurisdiction. Profit Shifting Profit shifting is a strategy of moving a person's income or a corporation’s profit from a region of higher income/profit tax rate to a region with a lower tax rate. Profit shifting is usually not strictly illegal, however it has a façade of legality by using loopholes in the tax code of different countries in order to achieve tax avoidance. 2.2. Methods of tax evasion In today’s globalized society and with skillful application of modern technology there are many ways to commit tax evasion and to conceal evidence of doing so. Since the world is becoming increasing complex and intransparent, it has become increasingly difficult to track down and prosecute tax evaders. It is of extreme difficulty for a revenue service to find out, which individuals in a nation of millions are committing tax evasion by either hiding or by giving wrong data to the government. 5 Nevertheless, revenue services have been able to track down some tax evaders and thus, have recognized certain recurring patterns, i.e. techniques that are commonly used. In order to counter tax evasion it is of great importance to be aware of the methods that are used frequently. Below you will find a short analysis of the most common methods of (modern) tax evasion. Underreporting of Income This is one the most common method of tax evasion, since every individual is obliged to report their annual income to their revenue service at their own discretion. An individual may declare a different amount of income in order to reduce the tax burden. A lower income results in a lower tax burden. Since the revenue service has no option of knowing the exact income of an individual in its jurisdiction, the risk of getting caught is relatively low. However, there is still a risk with this method: the employer. When the revenue service is conducting a tax audit and is following up on certain suspicious or randomly picked individuals, it might request some information from companies, including the annual income of its employees. Therefore, there are statistically far more cases of underreporting from self-employed citizens than of employees of large corporations. Another crucial issue on the problem of underreporting lies within the payment method: Especially in the self-employed sector, businesses are (mostly) carried out via cash payments. As cash leaves no paper trail, such as invoices, it has often become very difficult to carry out a tax audit with a clear result. Another important factor in this category is tax negligence, i.e. wrong reports about the income due to lack of information or knowledge about the tax code. Errors are a frequent phenomenon in this case due to the complexity of the regulations and provisions themselves.