16 June 2013

FT editorial: The world needs global tax reform

David Cameron's initiative to reform global corporate tax rules may still fall short of definitive success. This article claims that that is all the more reason for governments to push on after the G8 summit, together and at home.

The task remains formidable. There is a free-rider problem: every state would like everybody else to clamp down on tax avoidance without having to touch its own companies. That makes the G8 an ideal forum to create a commitment to act together. But Mr Cameron remains hampered by perceptions of hypocrisy: UK dependencies and the City of London advisers are important players in the tax minimisation game. 

The best G8 outcome would be an international agreement on how to link tax bases to real economic activity and limit the creation of letterbox subsidiaries whose sole purpose is to locate the most profitable parts of businesses in low-tax jurisdictions – or in no jurisdiction at all.

In the short run, the UK could provide real leadership by backing a push for a common consolidated corporate tax base across the EU. Far from a thin end of the wedge of tax rate harmonisation, CCCTB can protect legitimate tax competition against claims of unfairness. The G8 should also advance the cause of the automatic exchange of tax information between governments, an essential tool for tax authorities to verify that democratically chosen tax structures are working.

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