CBI makes U-turn on rules to curb tax dodging

Employers' body admits firms who abuse system must be brought to book

The Confederation of British Industry (CBI) has backed new powers for the Government to stamp out aggressive corporate tax avoidance schemes, which the employers' organisation admits seriously damage the reputation of British industry.

The dramatic U-turn comes after a Treasury-commissioned report published by Graham Aaronson QC last November which recommended a "General Anti-avoidance Rule" (GAAR) to replace the existing plethora of UK tax regulations. The CBI at first warned that a sweeping new anti-avoidance rule risked creating harmful uncertainty for firms. But now the business body has thrown its weight behind the GAAR. "We don't think business is done any favours by these highly abusive [tax avoidance] schemes which essentially tar all of us," said William Morris, chairman of the CBI's tax committee. "Therefore if we can come up with a GAAR which walls those things off and makes it clear that, whatever the words of the legislation are, HM Revenue & Customs can prevent them from happening, then we're all going to be better off. If that's the case, then yes, we're for it."

The CBI is today launching a campaign which aims to correct the public perception that UK businesses are not paying their fair share of tax. But John Cridland, the CBI's director general, said he accepted it was time for his organisation to push harder for businesses that aggressively avoid tax, even if they do so in a technically legal manner, to be brought to book.

"Traditionally there has been two categories: legitimate tax management, which HMRC accept is legal, and tax evasion that we don't support," he said. "If we're going to be honest in this public debate, there is a middle ground, there's a third category."

Mr Cridland defined this third category as "black box" arrangements, when businesses enter into opaque tax schemes that have no real relationship to the firm's underlying commercial purpose. "The CBI is saying those sort of arrangements may technically be legal, but if they are a black box-type arrangement, strictly non-commercial, we don't support it. And we're quite up for [the taxman] getting those sorts of arrangements out."

He added: "It's the first time we've said it this directly. It's quite a statement by the CBI."

Mr Cridland would not go so far as identifying those firms which are engaging in abusive tax schemes. "It would be a big ask for the CBI to get into name and shame," he said. "We're not a policing body."

However Richard Murphy, of the campaign group Tax Justice Network, said that the CBI was backing GAAR because the new rule would be ineffectual. "The GAAR would only tackle the very periphery of abuse," he said. "It would leave the vast majority of tax avoidance by multinationals completely untouched."

George Osborne is due to give the Government's official response to the Aaronson report in his Budget on 21 March. The Government has come under pressure to curb tax avoidance in recent years. The Commons Public Accounts Committee has accused tax officials of doing "unduly cosy" deals with big businesses, allowing them to minimise their payments.