British prime minister David Cameron has been talking up the success of his move to put “aggressive” tax avoidance at the center of the agenda for next week’s G8 summit, which he will host in Northern Ireland.
But can he first clean up the tax havens in his own political backyard?
Tax avoidance was "now being discussed, I suspect, in every boardroom in the world," said Mr. Cameron, who has moved in response to revelations that major companies such as Google and Starbucks have used legal loopholes to slash corporate tax bills in Britain.
But Cameron’s G8 plans to initiate a global crackdown on global tax havens are hampered by lingering doubts about his attempts to reach an agreement with a range of former British colonies and dependencies, whose sleepy remoteness allegedly belies their role as major facilitators for corporate tax avoidance.
Cameron has invited British overseas territories and crown dependencies to London on Saturday in an effort to get them to join a new international convention aimed at closing off multinational firms' cross-border avoidance schemes. Fourteen British overseas territories exist, along with three crown dependencies – the islands of Jersey, Guernsey, and the Isle of Man – which are also self-governing, but differ from the former in terms of their constitutional relationship with London.
But Cameron's chances for success remained uncertain on the eve of the meeting, in part due to Bermudian Premier Craig Cannonier's suggestion earlier this week that the agreement "needed to be adjusted."
Mr. Cannonier played down his earlier comment in a statement issued through Britain’s Foreign Office. "Following misleading reports in the media, I want to clarify that Bermuda is strongly committed to joining the multilateral convention on tax information-sharing,” he said.
Signing up overseas territories such as Bermuda, the Cayman Islands, and the British Virgin Islands – all of which have been cited by critics as among the world’s leading offshore tax havens – is crucial to Cameron’s attempts to take a G8 lead. Doing so would demonstrate that Britain is serious about taking action on its own doorstep against global tax evasion – which campaigners say could be costing more than $3 trillion a year.
It’s a challenging task owing to the nature of the constitutional relationship between Britain and the overseas territories and dependencies, says William Vicek, an academic at Scotland’s University of St. Andrews, whose research has focused on the global governance of financial criminality and offshore financial centers of the Caribbean.
“A situation has evolved whereby determining financial policy and tax policy has pretty much been left to the overseas territories, so in the end I think it’s a matter of how much the OTs [overseas territories] will feel a need to respond to Westminster,” he says.
If push comes to shove, the British government can still ultimately force legislation on the territories, as has been in the case in the decriminalization of homosexuality in the Cayman Islands. The British government also stepped in to resume control of the Turks and Caicos islands in 2009 to deal with the widespread allegations of corruption.
“Westminster retains responsibility for foreign affairs, defense policy, and for what they broadly call ‘good governance,’" Dr. Vicek adds. "So under that umbrella, they can go in and say we are going to clean the house, because you are not cleaning your own house. But there is a hesitancy to do that, because it is pretty much like going after folks with a stick.”
Closer to home, there have also been tensions over the issue as a result of the role of the City of London – the financial district of the British capital – as facilitator of relationships between overseas territories and major companies. For now, however, the personal political capital invested in the issue by Cameron indicates that change is in the offing.