David Cameron today denounced “aggressive” tax avoidance by international corporations, but warned the practice was difficult to outlaw.
Speaking on the first full day of a trade mission to India, he said there was a “moral” case for companies to pay their fair share in return for governments seeking to keep taxes low.
The Prime Minister has made transparency over tax a priority of Britain’s presidency this year of the G8 group of the world’s major economies following controversy over the tax arrangements of such companies as Starbucks, Amazon and Google.
George Osborne, the Chancellor, is also leading international work over how to prevent large firms side-stepping tax by shifting their profits between countries.
However, Mr Cameron spelt out the practical problems of cracking down on tax avoidance in a speech at Unilever's headquarters in Mumbai.
“Some would say, 'Just change the law to make aggressive avoidance illegal', but, with respect to my friends in the accountancy profession, it is difficult to do that,” he said.
“I think there is a legitimate debate to say very aggressive forms of avoidance are not appropriate.
“And particularly, in a country which has set a very low tax rate, it is fair to ask people to pay it."
He said: “I believe in low taxes. Governments should be trying to get their rates of tax down so they are competitive, but then I think it is only fair to ask businesses to pay them.
“My position is taxation is a part of the cost of doing business, but I think there is a deal.
“The deal in my country, which I want to be very frank about, is that you have a government that is cutting the levels of business taxation, we are cutting the rate of corporation tax on company profits, down to 21 per cent. That is a good, low, competitive rate.
“The message to business should be: ‘If we are cutting this rate of tax down to a good low level, you should be paying that rate of tax, rather than seeking ever more aggressive ways to avoid it’.
“I think there has been a problem in this debate in the past, in that people have said there is a difference between tax evasion - which is illegal and should be pursued by the full force of the law - and tax avoidance, which is perfectly legal and OK.
“I think the problem with that is that there are some forms of tax avoidance that have become so aggressive that there are moral questions that we have to answer about whether we want to encourage or allow that sort of behaviour.”