ActionAid says tax loophole will cheat poor countries out of £4 billion

George Osborne has been accused of depriving poor countries of up to £4bn a year by changing the tax rules for multi-national companies.

The charity ActionAid, which has studied the impact of new regulations to be confirmed in the Budget on March 21, claimed they will make it easier for global businesses to escape tax on their profits in developing nations. In a report published yesterday, it urged the Chancellor to think again.

Under the current rules, if a multi-national with its headquarters in Britain shifts its profits from anywhere in the world into a tax haven to lower its bills, the Treasury tops up the tax to bring it in line with the UK’s standard 23 per cent rate.

After the changes, this rule will apply only when profits are shifted directly from the UK into a tax haven abroad. ActionAid said this would make it easier and more lucrative for companies to move profits from developing countries into tax havens.

The Treasury is also proposing that where multinationals with HQs in Britain base their internal financing arms in tax havens, the UK will impose a tax of only 5.75 per cent on profits shifted there. The charity warned that these will become "potentially more lucrative vehicles for tax avoidance once this new loophole opens up" and could cost the Treasury almost £1bn a year.

The Treasury denied creating a loophole and dismissed ActionAid's estimates.  A spokesman said: “The CFC rules are designed to protect the UK tax base from artificial diversion of profits. The best way to prevent tax avoidance in developing countries is by helping them to develop robust and stable tax systems which enable them to collect the tax they are owed.  The UK delivers targeted and effective support to make this happen.”