What Britain wants from the G8 summit

With Britain holding the presidency of the G8, the prime minister is pushing for international action on aggressive tax avoidance and evasion.

While he is confident progress will be made, others are sceptical that any accord reached in Lough Erne (pictured above) will yield results.

Mr Cameron set out his stall at the Davos summit in January, with an attack on multinational companies that are not deemed to be paying their fair share of tax.

Alluding to Starbucks, which has been criticised for paying little corporation tax in Britain, he said: “Companies need to wake up and smell the coffee because the customers who buy from them have had enough.”

Challenge

Since then, other US companies with a big presence in Britain have faced similar criticism, although when Channel 4 News challenged Google’s Eric Schmidt on this in May, he said his firm obeyed the rules put in place by governments.

The issue of so-called “transfer pricing“, where companies move their profits around to minimise tax, will be in the background at the G8, but an action plan will not be ready until the G20 summit in July.

The G8, made up of the UK, US, Canada, France, Germany, Italy, Japan and Russia, will look at what the prime minister calls “tax compliance”: ensuring tax due from wealthy individuals and companies is actually paid.

The mechanism for achieving this is automatic information sharing between different countries’ tax authorities. Britain already has an arrangement in place with the US which means that information is made available to Revenue and Customs about people with money in bank accounts in America who may be liable for tax in Britain.

Britain has reached a similar agreement with France, Germany, Italy and Spain, but is now seeking a wider deal that includes other countries.

‘Years of abuse’

Mr Cameron is not purely driven by maximising the amount of money flowing to the British exchequer; he also wants developing countries to benefit.

He said in Davos: “We want to use the G8 to drive a more serious debate on tax evasion and tax avoidance. This is an issue whose time has come.

“After years of abuse people across the planet are rightly calling for more action and most importantly there is gathering political will to actually do something about it.

“The fact is the poorer the nation the more they need the tax revenues, but often the weaker the capacity they have to collect them. All of this in developed and developing countries alike comes down to a simple issue of fairness.”

The prime minister has also dragged in Britain’s 10 overseas territories and crown dependencies, regarded by some as tax havens. He has written to Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Anguilla, Montserrat, the Turks and Caicos Islands, Jersey, Guernsey and the Isle of Man, saying they need to “get their house in order” on tax transparency.

So what are Mr Cameron’s chances of success? Oxford University economist Paul Collier, who has been advising the government in the run-up to the G8, believes the omens are good.

Writing in Prospect magazine, he said that Starbucks’ decision last year to make “a contribution of £20m to the tax authorities … made targeting corporate tax avoidance politically easier than it might have been”.

Prof Collier said there had clearly been “a deterioration in corporate culture” and laws would need to be changed to plug loopholes because it would be “foolish to hope that the problem would be solved simply by calling for companies to rectify their culture and repair their sense of social obligation”.

He added that while he believed “real progress” would be made at the G8, “the real battle is the G20” and getting China on board.

UK Uncut spokesman David Palmer is less confident that there will be a breakthrough and doubts the prime minister’s sincerity.

‘Hugely sceptical’

“I am hugely sceptical that he means it and sceptical that it will come to anything,” he told Channel 4 News. “”We can change the taxation laws in this country to ensure companies pay more tax.

“It’s not particularly difficult to do legally. I think the argument that we have to have global agreement or nothing is a false dichotomy.

“I would say we’re sceptical and sceptical because this is a government that has done nothing to address equality and how the crisis has affected individuals versus corporations.”

Simon Tilford, chief economist at the Centre for European Reform, believes the best way to combat avoidance and evasion is to introduce harmonised tax rates and tax bases (what is liable for tax), but is under no illusions that this will happen.

‘Rhetoric’

“There is a lot of rhetoric and newfound readiness in the UK, France and Germany to speak as one on this, but they’ve never really been prepared to work together to do anything about it,” he told Channel 4 News.

“This is going to be a long, drawn-out affair. It’s not something that can be addressed quickly. Within the EU there is pressure that can be brought to bear, but David Cameron opposes harmonisation of corporation tax.

“It’s hard to see where governments in the EU can go on the issue of tax without harmonisation. It’s positive that they see it as a priority, but in terms of actually doing something about it, that is going to be much harder.”

The low (12.5 per cent) rate of corporation tax in Ireland has helped attract US technology companies, including Google and Apple.

While Mr Tilford is confident loopholes in Irish tax laws can be dealt with, he does not expect changes to corporation tax. “I don’t think they (the Irish) want to be marked out as a tax haven. But I’m sceptical we will see any movement on tax rates or tax bases,” he said.

And the British government has a job on its hands convincing others to take action. “Britain has its own network of tax havens and that means his argument about tax strategy is somewhat hollow.”