Chancellor George Osborne renews his call for global action to tackle the problem of multinational companies which move their profits around to avoid tax.
Calls for an overhaul of tax laws will be highlighted to finance ministers at the G20 in Moscow by the Organisation for Economic Co-operation and Development (OECD), which will present its report published this week.
The controversial “transfer pricing rules”, which were written almost 100 years ago, will be drawn into focus as one of the main vehicles of corporate tax avoidance. Transfer pricing is used by companies to divert profits to parent companies or to lower tax jurisdictions, via royalty and service payments
The chancellor will announce that Britain will chair a new transfer pricing group which will look at how to reform the system.
It is one of three groups set up by the OECD to look at the tax issues which will help the group prepare a “plan of action” to be put forward to the G20 in July.
Germany and the US and France also lead the other two groups, which will include looking at how to determine tax jurisdiction, particularly in the context of e-trading.
‘We are open for business’
Mr Osborne said: “Britain has cut its corporation tax rate by more than any other country in the G20 over the past two years, a message to the world that we are open for business that has seen companies return to Britain, and helping to create and secure thousands of jobs and millions in investment.
“But our commitment to the most competitive corporate tax system goes hand in hand with our call for strong international standards to make sure that global companies, like anyone else, pay the taxes they owe.
“That’s why Britain, with Germany and France, asked the OECD to scrutinise the international rules, and we will together welcome their report to the G20 this weekend. The report shows this is an international issue that requires international action.
“It shows the global economy has changed massively over the last decade, but global tax rules have stood still for almost a century, and Britain will lead the international effort to bring them into the twenty first century.”
Mr Osborne wants to use Britain’s presidency of the G8 in 2013 to push international progress on the reform of international tax rules, which were first developed by the League of Nations in the mid-1920s and remain essentially unchanged.