The UK chancellor George Osborne writes in PF about the stand he wants the G8 summit to take on corporate tax avoidance and transparency
The UK’s presidency of the Group of Eight nations is an opportunity to drive international action on tax evasion and avoidance.
In the UK, the government has been reforming its tax system to make it more competitive. We’re cutting corporation tax from 28% to 20% – the lowest in the G20 – to show that Britain is open for business and attract global companies. As a result, instead of leaving the UK, global companies are coming here and creating jobs. But I am clear that those corporate taxes, low as they are, must be paid.
All countries have national tax systems, and we should keep it that way. But companies trade internationally, and new technology and the internet have removed barriers to economic activity. This has been a huge boost to growth and jobs, but it has also left our twentieth-century corporate tax rules struggling to catch up. Research from the Organisation for Economic Co-operation and Development shows that some corporates can use perfectly legal loopholes in the global tax rules to avoid almost any tax in any jurisdiction.
And it’s a system that disadvantages smaller companies. Some large multinationals are exploiting the rules by getting profits out of high-tax countries and into tax havens, allowing them to pay as little as 5% in corporate taxes, while smaller businesses are paying up to 30%. This distorts competition, giving larger companies an advantage over smaller domestic companies.
The UK government is cracking down on avoidance and evasion at home. Prosecutions for tax evasion are up by 80%; we’re introducing the first ever General Anti-Abuse Rule, something campaigners have demanded for over a decade; and, as a result of this government’s investment, we expect to raise £22bn more a year from tackling evasion and avoidance by the end of the Parliament.
But acting alone has its limits. Clamp down in one country and it is easy for those companies to move elsewhere. The public in many countries are rightly asking that something be done. That’s why Britain has been making the case for change in the international community.
We are already making progress. In April, the UK reached agreement with France, Germany, Italy and Spain to develop and pilot multilateral tax information exchange. Under this deal, a wide range of financial information will be automatically exchanged between the five countries.
The opportunity provided by this pilot, and the momentum behind a single global standard based on agreements with the US, will help catch and deter tax evaders as well as provide a template for wider multilateral automatic tax information exchange.
It’s an important step in the fight against tax evasion. It builds on the firm public commitments by all the British Overseas Territories and the Isle of Man to join and share information with other jurisdictions also in the pilot. And at a meeting of European Union finance ministers in May, the UK and 16 other European countries agreed to support the development of a single global standard for automatic exchange of information covering a wide scope of income and entities.
As the prime minister has made clear, the UK will use its presidency of the G8 to explore options for greater levels of tax information exchange, particularly on a multilateral basis. Tax evasion and avoidance is an issue that affects both developed and developing countries. It is often the case that the poorer a nation is, the more it needs the tax revenues, but also the weaker its capacity to tackle tax avoidance effectively. So we’re seeing what collectively we can do to improve the international corporate tax rules, including better global reporting to tax authorities in both the developed and developing world.
Improving transparency of company ownership will help tackle tax evasion. It also has a key role to play in combating money laundering and illicit finance flows. That is why we are pressing all G8 countries to publish action plans setting out the steps that they will take. Information on the beneficial owner of companies must be freely available to law enforcement and tax collection agencies, for example through a central registry.
This is an issue whose time has come. The public in countries around the world are demanding change. This year, as the G8 leaders gather at Lough Erne in Northern Ireland, the UK has an opportunity to turn that public concern into a catalyst for change, creating a competitive tax system that supports businesses, but where everyone pays their fair share.
George Osborne is the chancellor of the exchequer
This article appeared in the June edition of Public Finance
