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It's not an accident Westminster's financial system allows tax avoidance ... it's designed that way

THE more you hear about tax avoidance, the more you pause in wonderment.

You might have heard, for example, that Google made £2.5 billion in revenues in Britain in 2011 but paid only £6 million in corporation tax. Remarkable, you might have thought.

Then you might have been told that the internet search firm – corporate slogan, "Don't Be Evil" – got away with that because of what are called double tax agreements. All its European advertising revenues are shipped to Google Ireland where 3000 people work, presumably counting the money. Good for the Irish, you might have thought.

If you carried on pondering, you probably concluded that the republic's generous corporation tax rates give it the edge over all others where Google is concerned.

Perhaps, you told yourself, Scotland could be like that after independence if every other European country doesn't follow suit. Splendid, you might have thought.

If you managed all that thinking, give yourself no marks out of 10. The Irish might impose a corporation tax rate of only 12.5% on trading income while Britain's rate is heading for 21% next April. But did you really think Google is in the business of, you know, paying those percentage-type things?

The chief function of those 3000 folk at Google Ireland is to wave the money on its way. The billions enter their country and, like a gigantic flock of geese bulging with golden eggs, fly off again. They leave no shiny eggs behind in Dublin as they head across the Atlantic.

Not to America. That would be foolish. That would involve the government of the United States. Instead, the vast bulk of all those billions earned in Britain and Europe goes to what's called a "Google entity". The entity pays no taxes. It is based in Bermuda. Bermuda, God bless it, is a British Overseas Territory.

You can, therefore, draw two quick lessons. One is that Google, Amazon, Starbucks, Vodafone, Apple, Rolls-Royce Group, British American Tobacco and others besides are not in the business of minimising tax liabilities in an old-fashioned, double-entry, "what can we claim on depreciation" sort of way. The name of the game is to avoid paying tax. That's the real prize.

The second lesson is that politicians are not as honestly indignant about this sort of thing as they like to make out. In fact, they're not honest at all. Britain maintains a string of tax havens such as Bermuda, the British Virgin Islands, the Cayman Islands, the Channels Islands and more.

The pretence that we have no control over such places is absurd. As with the arms trade, Britain is a player in a dirty game.

You have probably heard George Osborne, the Chancellor, making all sorts of stern noises about tax avoidance. You will hear more of the same next month when David Cameron chairs the G8 on Britain's behalf. We are, like a lot of countries, strapped for cash and trapped in an austerity madness. People are hard up, fed up and angry.

The spectacle of Starbucks shipping "royalties" to Amsterdam, or Amazon pretending that UK sales of £4.2 billion (tax paid: £3.2m) were somehow earned in Luxembourg, brings the average voter's blood to a rolling boil.

Cameron and Osborne know it, so they promise to "crack down", or explain how hard it is to get other countries to agree to crack down, or claim that it's difficult to tax slippery multi-nationals in the virtual world.

They don't tell you that Osborne has been rewriting the tax code in a way that only encourages these companies to avoid their dues. The Chancellor doesn't mention that there were once laws – "controlled foreign companies" laws – designed specifically to stop firms from shifting profits to offshoots in tax havens. Osborne has been "relaxing" these laws to death. As of this financial year, he will not be looking for tax from the subsidiaries of big firms located in the havens.

In a document on the subject, Osborne's Treasury maintains that the latest changes, introduced in January, will "remove some specific opportunities for corporation tax avoidance".

Failing to get its message straight, however, a statement published in April on www.gov.uk states: "To be more competitive, the UK's corporate tax system is focusing more on profits from UK activity, rather than the worldwide income of a group."

In other words, if you can make out that your earnings are not from "UK activity" you are, in all seriousness, quids in. The tax advisers at Grant Thornton, reporting Osborne's changes on their website, interrupt some tedious prose with a blunt bit of advice: "Any company with overseas operations may now be able to pay lower rates of tax." The Chancellor doesn't want to see controversy over tax avoidance strategies. Instead he has made tax avoidance easier than ever.

The idea that it is impossible to reform double tax agreements or transfer pricing – where, for example, the parent company pays all the money to an offshore subsidiary just to "license" the brand – is, quite simply, a lie.

Britain could act against its tax havens. The European Union could have stern words with poor, indebted Ireland about corporation tax. What's needed is will and common purpose.

Last summer, the Tax Justice Network published a study by James Henry, former chief economist at the McKinsey consultancy. He calculated that the world's super-rich have between £13 trillion and £20 trillion hidden away offshore. Just 92,000 individuals seem to have control of £10 trillion.

A lot of that will be truly dirty money, but a lot of it will have come from "legal tax avoidance" and most of it, tainted or clean, will be in agreeable British-controlled tax havens.

The sheer crookedness of all this at a time when so many economies are flat on their backs and so many people are in dire need is, of course, infuriating.

But is any of this news to Western governments? After all the fuss and effort of the war on terror, where's the war on avoidance? On that front, it's very quiet.

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