TAX avoidance will top the agenda of the G8 summit which begins today at Lough Erne in County Fermanagh.
Having given notice of this at the world economic forum at Davos, Prime Minister David Cameron must show that he has risen to the challenge of putting his own house in order. That was always going to be a tough task.
Tax avoidance, legal but only by virtue of deliberate exploitation of the cracks in an international tax system, has become a global scandal. By transferring profits, multinational companies are depleting government treasuries in both the developed and undeveloped world. The UK, however, has a particular problem in that some of this money is lodged in British overseas territories and crown dependencies.
Following a "mini-summit" of tax havens such as Jersey, Guernsey, Bermuda and the British Virgin Islands at the weekend, Mr Cameron announced plans to establish a register of beneficial ownership in the UK, which would require "shell" companies, deliberately structured so that their ownership was opaque, to declare who were the ultimate beneficiaries of their operations.
This is a step forward but, as The Herald reports today, action must also be taken much closer to home. UK banks have set up tax avoidance schemes estimated to have cost the Exchequer more than £3bn.
HMRC is already investigating how to limit such schemes. However, experience suggests that new restrictions will be seen as a challenge to the creative ingenuity of accountants and tax lawyers. That is one reason to agree with the more straightforward approach by Lord McFall that tax avoidance schemes should no longer be any part of banking services. At a time when banking remains under close scrutiny, amid much public concern about reluctance to lend to home buyers and small businesses, continuing multi-million pound bonuses and the eventual return from reprivatisation of those bailed out by the taxpayer, his argument that specialist tax avoidance is not consistent with the purpose of banks should carry weight. Banks cannot hope to repair their damaged reputation with the tax-paying public as long as they regard finding ways to circumvent tax liabilities as a key part of their business.
We must await the report of the Parliamentary Banking Commission to know if Lord McFall's views are shared by the other members but his call for regulations which provide for greater individual responsibility and restrictions on when bonuses can be paid will be welcomed by bank customers who want bankers to be held to account.
It is no coincidence that transparency is the theme of the G8 meeting. An important aspect of the dysfunctional international tax system is the effect on developing countries, particularly those whose natural resources are mined by global companies. In some cases a transparent system would provide far money than is currently delivered by the west in aid.
It cannot be unreasonable to require all multinational companies to report their profits, sales, and taxes paid on a country-by-country basis. By beginning the process of agreement on automatic exchange of tax information, the G8 can show that it is more than an economic talking shop for the leaders of rich Western countries and can make an impact on the lives of ordinary people.
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