VIEW

People are often curious and sceptical of global summits. A view often expressed is that they are grand talking shops that produce little in the way of real change.

But in the case of the G8 Summit being held in Loch Erne, Northern Ireland, this might not necessarily be a bad thing. It might even prove to be the best possible outcome.

David Cameron has listed three priorities of the summit: to advance trade, ensuring tax compliance and promoting greater transparency.

The subject of corporation tax, despite seeming staid and dry, is likely to feature at the top of this list. The issue of whether multinational businesses in particular should pay more has turned into a highly-emotive issue.

There is widespread indignation at companies’ minimal corporation tax contributions on multi-billion pound sales in the UK, but the issue is not as simple and straightforward as has been portrayed.

It may appear there is an open-and-shut-case for forcing multinationals to pay more but, as any company executive will know, turnover does not automatically convert into profit.

Sadly, taxes are ultimately borne by shareholders, business owners, employees and customers; some are merely collected by businesses.

It is good in many respects to hear the prime minister professing himself ‘proud to be a low-tax, free-enterprise politician’ and he is right when he says that ‘low taxes are only sustainable if what is owed is actually paid.’

Mr Cameron is on shakier ground, though, when he differentiates between the compliance of small firms and multinational conglomerates, painting the later as simply abusive.

Tax experts will acknowledge that there is no real difference in attitude between large global corporations, small business owners and individuals towards paying tax. They all want to pay as little as possible within the confines of the law, if this maintains an acceptable relationship with Her Majesty’s Customs & Revenue (HMRC).

Global businesses may have more opportunities to manage the system, by channelling payments and receipts to the most tax friendly countries.

Equally, large firms have to contend with a great deal of bureaucracy due to the complexities of operating in different regimes.

It probably would be best if the leaders at the G8 Summit resist the temptation to announce anything but the vaguest form of agreement and focus, instead, on three areas of concern. The first should be to introduce additional measures to prevent tax evasion. Secondly, measures should also be introduced to increase the exchange of information between countries to improve cross-border transparency. And, thirdly, an agreement should be aimed for that sets out a common vocabulary that recognises the public desire to prevent abusive tax practices. Such an agreement should also discourage individual countries from labelling routine and accepted tax planning as avoidance.

The problem, however, is that there is no prospect of an event such as the G8 Summit defining even in the broadest terms, what might be meant by tax avoidance or, indeed ‘aggressive tax avoidance’, because the meaning of these concepts is highly subjective. For example, the coalition government has rightly introduced a number of tax reliefs to promote the UK as an attractive country for business investment. The Patent Box tax regime, introduced to boost research and development in the UK, is seen here as a worthwhile tax incentive, but other countries may believe it promotes tax avoidance. Clearly, then, what one country’s perception of what is a valid and desirable tax break may often be regarded by other countries as an incentive to avoid tax.

The worst outcome of the G8 Summit would be an ill-conceived proposal to change the global approach to taxing businesses, focusing solely on where turnover is generated rather than where profits are earned.

There are plenty of valid reasons to resist a proposal such as this, including the damage this would inflict upon UK companies whose primary sources of revenue lie in overseas markets.

We should hope the prime minister and other G8 leaders resist the urge to make global tax policy on the hoof to provide some popular but transient sound-bites.