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 $3000bn(1.90 trillion pounds) a year according to researchers from Tax Justice Network while as much as $32 trillion - twice the size of US 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 favour 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 sceptics 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.”