Cameron says unhappy with corporate tax avoidance

Britain's Prime Minister David Cameron holds a news conference at the end of a European Union leaders summit in Brussels October 19, 2012.

LONDON (Reuters) - Prime Minister David Cameron said on Wednesday he was unhappy with the level of tax avoidance by big corporations working in Britain and urged authorities to make sure all companies paid their fair share of tax.

The tax affairs of major companies have been in the spotlight as reports have shown some companies legally paying very little tax by reducing their reported British profits.

This month, a Reuters report showed that U.S. coffee chain Starbucks paid almost no corporation tax in Britain in recent years, reporting losses to the HMRC tax authority while telling investors it was profitable.

The British government had previously declined to comment on cases of tax avoidance by large corporations but on Wednesday, Cameron told parliament that something had to be done.

"This is an international problem that all countries are struggling with, about how to make sure that companies pay tax in an appropriate way," he said, after a member of parliament asked him if tax avoidance by big companies was morally wrong.

"I am not happy with the current situation. I think the HMRC needs to look at it very carefully. We do need to make sure we are encouraging these businesses to invest in our country, as they are, but they should be paying fair taxes as well."

Cameron did not name any companies.

Previously the government has been keen to highlight the contribution of big business to the tax base. One minister from the Treasury has recently criticised media reports which questioned the tax practices of big businesses.

The Reuters report on October 15 showed that Starbucks paid no tax on 1.2 billion pounds of sales in the past three years, using perfectly legal procedures.

Starbucks Chief Executive Howard Schultz has since defended the company's tax affairs, saying it paid no British tax because it made no profit in Britain, even after 14 years of operations.

Two British parliamentary committees are now due to quiz tax officials about Seattle-based Starbucks, which has a market capitalisation of $35 billion. Parliamentarians have said it had undermined public trust in the tax system.

Governments around the world regularly update their tax rules to make it harder for companies to find legal loopholes allowing them to cut their tax bills by using sophisticated financial tools.

Last month, the European Parliament voted in favour of setting up a common EU system of taxation on interest and royalty payments made between associated companies operating in member states, which could help restrict tax avoidance.

The proposal requires unanimous support by all member states to become binding. Members of the European Parliament for Cameron's Conservative party were in the minority who voted against the proposal last month.

(Additional reporting by Tom Bergin; Editing by Alastair Macdonald)