G8: Britain's treasure islands make summit tax test for Cameron
Pitching tougher rules on tax evasion to the G8 is a precarious undertaking for Prime Minister David Cameron. Britain's own tax havens are world leaders.
Britain's list of exotic Overseas Territories reads like an accountant's dream menu for a cash-rich Russian oligarch with something to hide, while British lawyers lead the field as gatekeepers for elaborate global mazes of offshore trusts.
Global tax evasion could be costing more than $3 trillion a year according to researchers from Tax Justice Network while as much as $32 trillion - twice the size of U.S. gross domestic product - could be hidden by individuals in tax havens.
"British tax havens are world leaders in providing a particular type of secrecy," said John Christensen, an economist who directs the Tax Justice Network and who began investigating offshore havens in 1978.
From the families of Asian government officials to the new rich of the former Soviet Union, court cases and data leaks have shown many wealthy individuals favor Britain's modern day treasure islands as the place to park their millions.
Tax authorities scouring a huge batch of leaked data said last month that the British Virgin Islands and the Cayman Islands were among those housing shell companies and trusts to hide wealth.
Once buccaneer havens, many of the sleepy former British colonies now live off a blend of beach tourism and exotic finance that activists say leaves both locals and distant taxpayers short-changed.
Stung by revelations that the likes of Google and Starbucks have sharply cut their corporate tax bills in Britain using legal loopholes, Cameron has put tax avoidance at the heart of the agenda for the G8 summit.
"No one country can on their own effectively stamp out either tax evasion or aggressive tax avoidance and this is exactly the sort of issue that the leaders of the eight major economies should address," Cameron said.
The British leader has focused on trying to get a deal to create a public register on the beneficial ownership of thousands of shell companies and to achieve greater exchange of information between tax authorities.
Global Witness, a campaign group, says a public register would be an achievement even if only one or two G8 members signed up as it would help reveal the real owners of the shell companies it describes as "the worm at the heart of the apple of all money laundering and corruption".
But skeptics doubt the effectiveness of such unilateral steps unless the kind of opaque tax structures used by Britain's offshore territories are tackled head on.
"We also need a major crackdown on tax havens - the bedrock of global tax avoidance," Margaret Hodge, Labour chairman of the British parliament's influential Public Accounts Committee (PAC), wrote in the Guardian this month.
"The prime minister has given us plenty of tough talk about cracking down on tax avoidance. Whether he can deliver a concrete agreement will be a crucial test of his leadership."
Cameron has invited Overseas Territories, including Bermuda and the British Virgin Islands, to London before the G8 summit to try to hash out a deal on international transparency.
Advisers cautioned that London has little real leverage with the Overseas Territories, which sport the Union Jack on their flags and share the British monarch as their head of state.
However, the fact that some of the world's most high profile tax havens are what some have described as British franchises is seen as complicating Cameron's push for coordinated global action.
"The key issue is this delicate dance that needs to be done with the offshore territories and also with the G8 members," said Robert Palmer at Global Witness.
Some campaigners said Cameron should be applauded for raising the tax issue with leaders such as U.S. President Barack Obama and Russian President Vladimir Putin. But accountants said getting a deal with teeth may elude him.
"There will be an agreement to look at the issue, but that's probably about the best they will get," said Bob Rothenberg, a senior partner at London accountants Blick Rothenberg. "That's a nice general thing, but it means nothing."
"The politicians are really hiding behind the corporates in terms of trying to make them feel more socially responsible whilst not grasping the nettle by trying to deal with tax rules in their own countries," Rothenberg said.
Russia, Canada, Germany and Japan are all believed to be reluctant to make firm commitments at the summit, and while the United States has put pressure on non-U.S. banks for greater transparency, some of its states, such as Delaware, remain a thriving hub for shell companies.
"It's very difficult to land the overseas territories unless you also land the U.S. That's the challenge the Prime Minister has," Palmer said.
Cameron has not yet publicly mentioned tackling offshore trusts - a vehicle that offshore lawyers pitch as a way to shield assets from tax and any claims from governments or competitors - in relation to the G8 summit.
"It's what's off the agenda rather than what is on the agenda that matters," said Christensen. "It seems clear that Cameron is not really going as far as to tackle the issue of trusts - that is where the danger lies."