David Cameron has one chance to target the tax dodgers—here is what he should doby Paul Collier / March 27, 2013 / Leave a comment
Published in April 2013 issue of Prospect Magazine
Opportunities for global cooperation on tax avoidance “are grimly limited.” David Cameron must use the G8 presidency to press for action © Reuters
Starbucks has done the world a great service. The techniques it used to avoid paying much corporation tax in Britain, in the 15 years since its coffee shops first appeared on the country’s high streets, while legal, have made the issue apparent and important to the British electorate. On the £3bn sales it has achieved in Britain since 1998, it has paid only £8.6m in corporation tax, a ratio that has pushed the previously arcane question of “corporate transfer pricing” to the centre of political debate. Starbucks could not have chosen a better moment: for the first time in years, the UK government has a chance to do something about it.
Starbucks’s behaviour is the tip of an iceberg of corporate opacity. We cannot know how important it is, although estimates are enormous. Private financial wealth sitting in tax havens seems to be of the order of $21 trillion, of which around $9 trillion is from developing countries. Some miniscule jurisdictions, such as the Cayman Islands, have become the legal home of trillions of dollars of corporate assets through offering the unbeatable attractions of zero taxation plus secrecy. Some industries are now dominated by tax havens: half the world’s shipping is registered in them.
It is difficult to see how this state of affairs can be in either the British or the global interest, but it can be addressed only through determined international cooperation. Abuse has persisted, and indeed escalated, because the opportunities for inter-government cooperation are grimly limited: a reflection of the deficit in global economic governance. The world must make do with such opportunities as it has and the most practical forum to get things started is the G8, the annual meeting of the heads of the world’s major economies—the US, Japan, the UK, France, Germany, Italy, Canada, and Russia, as well as those of the European Commission and European Council. This year, by rotation, Britain is the host, and will hold the summit on 17th and 18th June in Lough Erne, Northern Ireland. The G8 is a rare and precious opportunity: a private discussion among these leaders of an agreed economic policy agenda. Britain, as host, proposes an agenda which is then determined by agreement. While the presidency of the G8 does not confer authority, it offers the power to persuade. David Cameron rightly plans to keep the meetings small and closed, increasing the chances of honest discussion. Launching practical actions to tackle corporate opacity would benefit not only Britain and its G8 partners, but Africa which has suffered the consequences of tax avoidance and corruption for decades.