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Tolstoy a Better Read Than UK Tax Code: Osborne

Reported by Steve Sedgwick, Written by Deepanshu Bagchee
Sunday, 17 Feb 2013 | 1:15 PM ET
We Need International Agreement on Tax: Uk's Osborne
George Osborne, UK finance minister, tells CNBC the international tax rules have not kept pace with the changes in the world economy, they need to be updated but it can't be done in one country.

George Osborne, the U.K.'s chancellor of the exchequer, has admitted that the country's tax code is in need of an overhaul, but he said reforms would have to be coordinated with other countries to ensure the U.K. isn't "priced out of the market.

Britain's newspapers have been scathing about the complex tax rules, pointing out that the tax handbook is 10 times longer than Tolstoy's "War and Peace," which runs to 1,200 pages.

(Read More: G-20 Defuses 'Currency War,' Japan Off the Hook)

"Tolstoy is also a better read. Tax rules were developed amazingly a hundred years ago," Osborne told CNBC on the sidelines of the G-20 meeting in Moscow. "They were developed by the League of Nations after World War I. They've not kept pace with the changes in the world economy, in the way international companies do their business, the way we all go about our economic activity for example on the Internet."

The British finance minister added that while the U.K. wanted to update the tax rules, it couldn't do it on its own without the risk of driving global businesses to other countries.

"It's not possible for the U.K. to address the structure of the international economy simply through its tax code, we want international companies to see Britain as a home for business," Osborne said. "By working with the [Organization for Economic Co-operation and Development], with Germany and Australia, the U.S. and so on, actually we can get an international agreement without pricing ourselves out of the world market."

On Friday, Osborne along with his French and German counterparts wrote a joint letter to the Financial Times arguing that some multinationals were avoiding paying their fair share of taxes and that the public was rightfully demanding something be done.

The U.K. will lead efforts to reform global rules on "transfer pricing" which allows companies to transfer taxable profits from high-tax countries to lower-tax regimes such as Ireland, Bermuda, and the Cayman Islands.

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"As a result, some large multinationals are able to restructure their business to avoid paying their fair share in tax. Some are exploiting the rules by getting profits out of high tax countries and into tax havens, allowing them to pay as little as 5 percent in corporate taxes while smaller businesses are paying up to 30 percent," Osborne wrote in a column in Britain's The Guardian newspaper on Saturday.

On Tuesday, the OECD issued a plan to close global tax loopholes. It warned that "profit shifting" had created a perception that "taxes are only paid by the naive."

The issue has become a lightning rod after it was revealed last year that companies such as Starbucks, Amazon, Google, and Facebook had paid very little corporate tax in the U.K. over the years.

Starbucks, for example, paid just 8.6 million pounds ($13.3 million) in U.K. corporation tax in its 14 years operating in the U.K., Reuters reported last year. The company, however, said it had not been that profitable in the U.K. because of the high levels of competition and high cost of doing business in the country. Still, it agreed to pay an extra tax of 20 million pounds ($31 million) over the next two years, irrespective of whether its U.K. operations are profitable or not.

Google paid just 3.4 million pounds ($5.3 million) in U.K. corporate taxes in 2011, despite posting 2.5 billion pounds ($3.9 billion) in sales in the country, according to a report by the U.K. parliament's public accounts committee, while Amazon paid 1.8 million pounds ($2.8 million) in 2011, despite sales of 207 million pounds ($321 million).

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