U.K. Prime Minister David Cameron likened “aggressive” forms of tax avoidance by multinational companies to illegal tax evasion, saying that its most extreme examples raise questions of morality.
“There has been a problem in this debate in the past in that people have said: ‘Well of course there is a difference between tax evasion, which is illegal and should be pursued by the full force of the law, and then there is tax avoidance which is perfectly legal and OK,’” Cameron said in Mumbai today, during the first of a three-day visit to India.
“The problem with that is that there are some forms of tax avoidance that have become so aggressive that I think there are moral questions we have to answer about whether we want to encourage or allow that sort of behavior.”
The comments come two days after Britain, Germany and France called on other Group of 20 nations to curb tax avoidance by international corporations that shift profits to territories where they can pay the lowest amounts. Closing avoidance loopholes encourages companies to seek other ways to minimize taxes, Cameron said. He wants to pile pressure on them to pay what’s due.
Western nations, seeking to shrink budget deficits, are looking for ways to raise more money from companies to placate voters squeezed by falling living standards and cuts to public spending. The Organization for Economic Cooperation and Development is working on plans which, if approved by the U.K., Germany and France, will be put before the G-20 in July.
“Some would say: ‘Well, just keep changing the law to make the aggressive avoidance illegal.’ But with respect to many friends in the accountancy profession it is difficult to do that,” Cameron said. “There is a legitimate debate to say very aggressive forms of avoidance are not appropriate.”
Amazon.com Inc. was among three U.S. companies singled out by U.K. lawmakers last year for not paying enough tax in Britain. Members of Parliament’s Public Accounts Committee criticized the online retailer, Starbucks Inc. and Google Inc. for using complex accounting methods to reduce their tax liabilities in the U.K.
Testimony by the retailers at a Nov. 13 hearing at times drew laughter from lawmakers who queried how Amazon made 20 million euros ($27 million) profit on sales of 9.1 billion euros across Europe and questioned why Starbucks remained in Britain as it had recorded losses for most of the 15 years it had operated in the country. Google paid 6 million pounds in company tax in Britain last year.
The U.K. government said this week it would bar companies with a history of breaking tax rules from winning government contracts.
Under proposals published last week in the U.K., companies bidding for contracts starting on April 1 will have to make a declaration about their tax compliance, and departments will for the first time have the power to refuse contracts on the grounds a company has broken anti-avoidance rules.