UPDATE 3-British PM takes aim at corporate tax avoiders

Thu Jan 24, 2013 2:28pm EST

(Adds legal reaction, background)

By Kate Holton

Jan 24 (Reuters) - Prime Minister David Cameron on Thursday attacked multinational corporations that avoid paying their fair share of tax, promising action against such aggressive strategies after a public backlash in Britain.

The issue of tax avoidance by big business has turned toxic in recent years as millions of Britons struggle with low pay rises and austerity measures introduced to reduce the budget deficit.

Companies that are viewed as paying too little tax, such as coffee chain Starbucks, have been targeted by demonstrators and boycotts.

"I am a low-tax Conservative but I'm not a companies-should-pay-no-tax Conservative," Cameron told business leaders at the World Economic Forum in Davos.

"Individuals and businesses must pay their fair share," he said, adding that he would use his presidency of the Group of Eight industrialized nations to press the point.

Cameron did not mention any companies by name. At the height of the uproar last year, British lawmakers singled out Google , Amazon and Starbucks as companies that pay very little tax in Britain on profit from sales there.

The businesses say they comply with British tax law, but under a tide of public outrage and demonstrations at its stores, Starbucks last year said it would pay around 20 million pounds ($32 million) in corporation tax in Britain over the next two years.

"Any businesses who think that they can carry on dodging that fair share ... need to wake up and smell the coffee," Cameron said, adding that he was not anti-business but wanted to keep tax rates low for everyone else.

Cameron's Conservative party has long been criticized for being close to big business, but the prime minister's speech indicated a change of tone toward companies avoiding tax.

"The public who buy from them have had enough," he said.

MOUNTING PRESSURE

Much of the anger in Britain has come from smaller local retailers who are unable to take advantage of international tax arrangements while they struggle with high rents and low consumer spending.

With politicians ramping up the pressure, Goldman Sachs also came in for criticism over plans, since scrapped, to delay paying bonuses to its bankers in Britain to exploit an income tax cut for top earners that is due in April.

The bank changed its plans after being publicly rebuked by the Bank of England Governor Mervyn King.

Despite growing public anger it will be difficult to change the rules.

"Cameron's statements on the taxation of multinational companies will no doubt receive strong support," said Ben Jones, a tax expert at law firm Eversheds. "But he will have to work hard to ... avoid the issue becoming mired by the bureaucracy of international tax policy.

"Central to many of the tax structures put in place by multinational companies are the international rules on transfer pricing. Changing these rules requires broad international agreement, which typically takes a long time to obtain."

The Trades Union Congress - Britain's labor union federation - said Cameron's government needed to start by making the British tax system far more transparent.

That process may be helped by a Supreme Court ruling on Wednesday which said that advice by accountants could not be kept secret in the same way that legal counsel is confidential.

"David Cameron has been quick to highlight the problem of tax avoidance but slow to actually do anything about it," the TaxPayers' Alliance, which campaigns for lower tax rates, said in response to the speech.

"Families are left feeling short-changed and let down by their politicians because international corporations can take advantage of loopholes and reliefs not open to them," it said.

It was a view that struck a chord on the streets of a cold London on Thursday. "It's disgusting ... We pay tax, we haven't got a choice," said Clive Read, a 54-year-old printer. "They should pay their taxes, just like other companies." ($1 = 0.6313 British pounds) (Reporting by Kate Holton and Costas Pitas in London; Writing by Kate Holton; Editing by Peter Graff and Giles Elgood)