Cameron calls for concerted action on international tax avoidance from G8

Speaking at the World Economic Forum in Davos, David Cameron said that action taken by individual companies would only cause "the travelling caravan of lawyers, accountants and financial gurus" to "move on elsewhere". The UK heads the G8 group of the world's richest countries this year.

"Of course there is nothing wrong with sensible tax planning and there are some things governments want people to do that reduce tax bills such as investing in a pension, a start-up business or giving money to charity," Cameron said in his speech. "But there are some forms of avoidance that have become too aggressive that I think it is right to say these raise ethical issues and it is time to call for more responsibility and for governments to act accordingly."

"Individuals and business must pay their fair share and businesses who think they can carry on dodging that fair share or that they can keep on selling to the UK and setting up evermore complicated tax arrangements abroad to squeeze their tax bills right down, well they need to 'wake up and smell the coffee' because the public who buy from them have had enough," he said.

He called on fellow leaders to "ask difficult questions" about whether existing standards were "tough enough to tackle avoidance", and to "explore options" for more multinational automatic information exchange agreements on the financial affairs of suspected "tax evaders". The UK has a large network of information exchange agreements in place with other tax authorities including Switzerland, Liechtenstein and the Isle of Man, and has agreed reciprocal information-sharing arrangements with the US as part of measures to implement the US Foreign Accounts Tax Compliance Act (FATCA).

"The Prime Minister's recognition of the importance of international co-operation to combat evasion is welcome," said tax expert Jason Collins of Pinsent Masons, the law firm behind Out-Law.com. "It is no use countries unilaterally proposing law changes to combat evasion, as this approach merely moves the problem elsewhere. A globally consistent approach to tax evasion is needed."

Multinational companies including Amazon, Starbucks and Google have all been accused of 'profit shifting', or deliberately transferring profits from the UK to lower tax jurisdictions in order to reduce their UK tax liability, in recent months. The Public Accounts Committee (PAC) referred to evidence of the companies' "outrageous" tax arrangements as part of a highly critical report into HMRC's annual accounts, published last month.

Tax expert Heather Self of Pinsent Masons welcomed Cameron's comments, which she said showed awareness of "multilateral solutions, not knee-jerk reactions by the UK" on tax avoidance.

"A lot of the debate around the 'fair share of taxes' has been very superficial – let's hope we can now have an informed discussion," she said. "What the UK must do is set clear rules and enforce them properly so that the UK gets its 'fair share' of tax from multinationals operating here. At the same time, the UK needs a competitive tax system in order to attract and retain business – and the jobs they create."

"The transfer pricing rules have fallen behind the way that global business operates, and it is time to take a fresh look. But at a country level, there will be winners and losers from any change, so the UK should not expect it to be easy," she said.

Transfer Pricing Guidelines published by the Organisation for Economic Co-operation and Reform (OECD) provide guidance on the application of the 'arm's length principle' for the valuation, for tax purposes, of cross-border transactions between companies of the same group . The purpose of those guidelines is to ensure that the taxable profits of multinational companies are not artificially shifted out of higher tax jurisdictions. The OECD is also advising governments on tackling aggressive international tax avoidance which exploits differences in the tax treatment of entities or transactions between jurisdictions.