Keeping it focused at the G8

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Lots of news in the weekend about the PM's priorities for the G8 this week in Northern Ireland. For me though it highlights again how emotive and tangled up the current 'tax avoidance' debate has become.

The issue of sorting out tax transparency from Crown depedencies around the globe has been stirred in with large multinationals low effective tax rates with country-by-country reporting and with global tax competition.

The result is a confusing mess for the public who are nonetheless encouraged by the media to think that 'something' must be done - because all this complexity must be hiding corporate malfeasance.

From our perspective, the public is right to demand a reform of international tax rules, many decades old and the Prime Minister is right to raise the issue with his G8 colleagues. But we have to be very careful not to throw the tax baby out with the bath water.

This government has made a virtue of reforming the UK corporate tax system to encourage investment and growth in our country. Once our headline rate hits 20% in 2015 it will be the lowest equal in the G20; that makes big multinational firms sit up and take notice when contemplating where to put their next major investment.

So it is somewhat counterproductive therefore for a threat of a non-specific tax 'crack-down' on multinationals to be simultaneously aired by politicians (though admittedly not by the government). It helps create a climate of uncertainty that undoes the positive impact of the headline rate reform.

Neither is it a very targeted intervention when some very specific behaviours of concern are what tend to generate much of the heat. Our sector has not particularly been subject to tax avoidance headlines - but it's understandable our members are worried with a range of policy sledgehammers being lined up to crack very particular nuts.

We need to be much clearer in this debate about precisely what constitutes tax avoidance and what behaviour the government is targetting. We need a clear process around these reforms and an opportunity for business to feed into a consultation process.

Any new measures need explicit ex ante impact assessments and where tax issues have an international character, the UK must act in concert with other countries, not unilaterally.

Finally, any reform needs to have a point. Asking for country-by-country reporting of company tax positions may sound a great way to open up transparency. But will it really deliver greater confidence from the public in our corporate tax system? And if it doesn't and it simply adds new compliance for corporates, why exactly would we do it?

For more information see our latest report Focusing the Avoidance Debate: Tackling tax without damaging growth.


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