UK tax havens urged to introduce VAT and corporate tax

British tax havens without VAT and corporation tax regimes are being urged to consider introducing them following a wide-ranging independent report which warns the global recession could threaten their viability.

The recommendation was made in a study by Deloitte, which said there is a " compelling case" for VAT and that CT could raise "worthwhile levels of revenue" , while recognising that some of the havens rely on low or absent taxation to attract business.

The main report by the Promontory Financial Group’s UK chairman, Michael Foot, called for a further crackdown on the use of havens for tax evasion and avoidance and financial crime.

Foot said much progress has been made in many of the dependencies, but a lot more required to be done, adding: "Meeting international standards on tax transparency, financial sector regulation and financial crime is an absolute must if the jurisdictions wish to continue to hold themselves out as internationally active financial centres, but international pressure must also be maintained on competitor jurisdictions to raise their standards."

He warned that complex constitutional arrangements exist covering the relationship between the UK and the overseas territories and Crown dependencies concerned, but Britain remains with unquantified potential liabilities if things go wrong.

The report applies to Jersey, Guernsey, Isle of Man, Bermuda, Cayman Islands, Gibraltar, Turks and Caicos Islands, British Virgin Islands and Anguilla.

Treasury Financial Secretary Stephen Timms said the it had come "amidst a real step change in the international determination to tackle tax and regulatory havens under the UK’s leadership of the G20."

He added: "This report sends a strong signal to overseas financial centres that they must ensure that they have the correct regulation and supervision in place, while also ensuring their tax bases are more diverse and sustainable to withstand economic shocks – this is essential to their long term stability."