Tax systems and regimes must be modernized if we are to meet the wider economic challenge. So we must:
respond effectively to anti-competitive tax practices;
ensure that our tax system is efficient; and eliminate unnecessary rigidities in the tax system that act as a barrier to business.
At the same time, the UK recognizes that tax systems in different countries need to respond in different ways to the challenges we face. The tax systems we have each developed are based on cultural preferences which are at the heart of our individual national policies and preferences. For example, EU member states have to fund differing levels of public services and have different preferences for one tax over another.
And different tax systems also allow governments to respond to national preferences on the role, structure and aims of taxation. We do not need to question this diversity. We do not need to harmonize to meet the challenges we face- But we do need to foster the natural dynamism within our economies.
I see no contradiction between taking effective action against abuse and harmful tax competition and building a dynamic economy. The key is to preserve that natural dynamism while strengthening the effective cooperation between governments. Countries across the globe have a choice.
either to turn inwards in which case we will fail to respond effectively to anti-competitive lax practices which inhibit36 the development of competition;
or to face the global challenge and work with partners to allow fair tax competition to flourish;
allow the creation of efficient tax systems based on broad bases and low rates; and counter pressures for tax harmonization.
Secrecy, lack of transparency and discrimination are all examples of anti-competitive practices. Lack of transparency and secrecy encourage tax evasion and avoidance which in turn inhibits governments' ability to apply their tax laws fairly and effectively to individuals and business alike.
The result is that the respect for Jaw is undermined and that in turn can result in distortion of the market and economic growth and development. The UK sees transparency and exchange of information as being essential for effective competition.
But exchange of information and transparency alone are not sufficient to allow fair tax competition to flourish. When tax systems discriminate between companies of the same size carrying on tile same line of business then, by definition, we do not have a level playing field.
And though in some cases an element of discrimination may be soundly based in economics to compensate for failures in the market, in most it is not. Where the design; of tax measures is such that commercial decisions are distorted in a discriminatory way, this will inhibit, not enhance stable and sustainable economic growth.
The UK supports action to limit discriminatory practices that are anti-competitive.