In early November, members of the U.K. Parliament assailed executives from Google Inc., Starbucks Corp. and Amazon.com Inc. for moving billions of dollars in profits into tax havens.

Less than a month later, Chancellor of the Exchequer George Osborne said he would lower the U.K.’s corporate tax rate to 21 percent, below Germany and France, from 28 percent in 2010. A month after that, the U.K. cut the rate further, to less than 6 percent, on profit attributed to offshore arms that make loans to other units. These subsidiaries can help U.K.-based multinationals shift income to mailboxes in tax havens.

“Here is a blatant incentive inside the U.K. tax system to move profits previously in London into a tax haven,” said Richard Murphy, director of Tax Research LLP in Norfolk, England. “It is just absurd. At the same time, we have people like Osborne saying ’I’m going to crack down on tax avoidance.”’

As politicians in Europe and the U.S. talk tough on corporate tax dodging, several of their governments are helping multinationals lower tax bills. They have been cutting corporate rates, introducing laws that encourage tax avoidance, and rejecting proposals to close loopholes. Even amid growing public outrage in Europe against austerity policies, the gulf between rhetoric and reality on taxation means individuals rather than businesses are often bearing the brunt of higher taxes.

‘Avoidance Game’

At a time when unemployment in the European Union is at record levels, nations eager for jobs remain hesitant to alienate multinational companies by raising their taxes. Instead, countries such as Spain, Greece, and Hungary have imposed hefty sales tax increases, a hit borne most severely by poor people.

“I am skeptical whether the different countries have the political courage to take on the corporate tax avoidance game,” said Sven Giegold, a member of the EU parliament from Germany’s Green Party. “You need consensus of the participating partners, and I do not see the leadership to force through a global model.”

In December, the European Commission, the governing body of the EU, declared war on tax evasion and avoidance, which it said costs the EU 1 trillion euros a year. It encouraged its members to create “blacklists” of tax havens.

Still, the commission instructed them to single out only non-EU countries as havens -- even though member-nations such as Luxembourg, the Netherlands, and Ireland encourage multinational companies to legally dodge billions of dollars in taxes around the world.

Helpless EU

Similarly, the Organization for Economic Cooperation and Development, an influential publicly funded think tank on international tax policy, used to cite potentially harmful tax behavior by member states, including Luxembourg, the Netherlands, Ireland, Belgium and others. It stopped issuing those reports in 2006 because of “a lack of political interest” from member nations, said Pascal Saint Amans, director of the OECD’s Center for Tax Policy and Administration.

“The Europeans say one thing and do another,” said H. David Rosenbloom, the head of the international tax program at New York University’s law school and an attorney at Caplin & Drysdale in Washington. “The EU can’t do anything as long as it’s got Luxembourg and the Netherlands and Ireland” within the union.

EU spokeswoman Natasja Bohez-Rubiano said its member states have agreed to not introduce any new tax loopholes, thus making internal blacklists unnecessary.

Regimes Undermine

“What is clearly needed, however, is greater coordination in taxation, to prevent one national regime from undermining another, and to address loopholes and mismatches. That is precisely what the Commission is proposing,” she said.

Some action may yet emerge from all the talk. The OECD says it will release an “action plan” on profit shifting by July. The agency expects to address policies by member states that help corporations avoid taxes, Saint Amans said.

The European Commission is now re-examining a set of key EU rules that makes it easier for companies to dodge taxes. The most important are a pair of directives allowing units of multinationals to shift profits into subsidiaries free of withholding taxes -- regardless of whether the units receiving the cash ever pay any taxes on it.

“These two directives are sort of the infrastructure for the tax dodging,” said Giegold, the parliament member from Germany.

French President Francois Hollande recently said he wants companies there to disclose more details on foreign units, including profits and taxes in haven subsidiaries. Hollande’s former budget minister last month acknowledged hiding much of his wealth offshore.

Efforts Stalled

Countries are increasingly announcing agreements to share information about individual tax dodgers, prodded in part by a new U.S. law that requires foreign banks to report information on accounts to the Internal Revenue Service.

Yet efforts to make corporations pay more taxes are largely stalled.

Since 2007, countries including Italy, Spain, the U.K., Germany, Greece and Sweden have cut their corporate tax rates, seeking to compete with neighbors for profits and jobs. In some cases, countries are keeping tax incentives in place for native corporations, even as they eliminate loopholes for foreign multinationals.

In that vein, France last year tightened a law that permitted foreign multinationals to use French subsidiaries there to rack up big deductions on interest expense. While the country has changed some laws for domestic companies as well, the rules for such deductions for native French businesses remain generous, practitioners said.

Profit Shifting

“Governments don’t like it when profit shifting is happening to them. But since they want their own multinationals to be successful, they’re effectively helping them engage in profit shifting-type transactions in other countries,” said Les Samuels, a former assistant U.S. Treasury secretary for tax policy under President Bill Clinton. “It could be considered a beggar thy neighbor tax policy.”

In January, the Netherlands held a parliamentary debate to examine its own role as an enabler of tax avoidance. The country’s extensive tax treaty network and permissive policies have encouraged companies to shift as much as $13 trillion a year through paper units there, much of it en route to island havens. As previously reported by Bloomberg, companies including Google, Yahoo! Inc., Dell Inc., Merck & Co., Cisco Systems Inc., Microsoft Corp. and Forest Laboratories Inc. have made use of such shelters, with nicknames like the “Dutch Sandwich.”

Cosmetic Change

At that debate, the parliament rejected a pair of motions to tighten loopholes for companies in the Netherlands, including requiring them to have employees in the country to be eligible for favorable tax treatment.

Instead, parliament made a cosmetic change by rejecting the term “tax haven” to describe the Netherlands. In April, the parliament asked the finance ministry to develop an “action plan” to address Dutch tax dodging, but hasn’t taken up any anti-tax haven legislation since.

Meanwhile, Ireland, already an attractive destination for multinational companies, is making it even easier for them to avoid taxes.

Last year, for example, Irish revenue authorities agreed to let Google make billions of dollars in royalty payments directly to a Bermuda subsidiary, helping to cut the company’s tax bill by at least $2 billion a year, according to U.S. and overseas securities filings. Previously, Google had routed those payments through a shell company in the Netherlands to avoid a 20 percent Irish withholding tax on payments destined for island havens. According to a person with knowledge of the arrangement, Ireland agreed to accept an additional tax well below 20 percent in exchange for the favorable treatment.

Even Germany

Even Germany, considered relatively vigilant in policing tax avoidance, permits multinationals to bring profits home from havens — especially other EU countries — without any additional levy.

“It would be very important for Germany to do something about this,” said Markus Meinzer, a senior analyst for Tax Justice Network, based in Marburg, Germany.

While lacking Europe’s public uproar over corporate tax avoidance, the U.S. has seen the same gap between policy makers’ talk and action.

“Every multinational company should have to pay a basic minimum tax,” President Barack Obama said last year in his State of the Union speech. “No American company should be able to avoid paying its fair share of taxes.”

Loopholes Open

Along those lines, the Treasury Department in April unveiled a list of global tax loopholes that it wants to close, many of which it is targeting for the fifth year in a row. With the exception of one provision changing the way U.S. multinational companies take credits they get for paying income taxes abroad, none of the major initiatives have become law.

In late 2011, Representative Dave Camp, chairman of the House Ways and Means Committee, surprised industry groups by announcing a set of international tax proposals, many of which could have hampered corporate shelter strategies. Almost nineteen months later, the Michigan Republican still hasn’t introduced a bill to turn those ideas into law. A spokesman for Camp said the committee will bring forward a tax reform bill this year, including the international proposals.

‘Bedroom Tax’

Nowhere is the public anger over corporate tax dodging more visible than in the U.K. Protesters have organized repeated marches and public demonstrations, including occupations in December of Starbucks coffee shops. In April, demonstrators rallied outside the homes of U.K. government officials over the so-called “bedroom tax” — serving one of the officials with a mock eviction notice. The bedroom tax is not actually a tax, but a reduction in government housing benefits for people deemed to have too much living space.

In their public comments, British leaders are responding. The House of Commons has said it will ask Google to return for a second hearing this coming Thursday to explain its low U.K. tax bill. Prime Minister David Cameron wrote to the president of the European Council in late April that he wants Europe to lead a fight on tax dodging.

“As you know, the loss of tax revenue resulting from tax evasion and aggressive avoidance is staggering,” he wrote. “In a period of fiscal consolidation where hard-working citizens and businesses are being asked to bear extra burdens, we need coordinated, truly global action to address these issues.”

At a meeting of the Group of Seven nations on Saturday in Aylesbury, outside London, Chancellor of the Exchequer Osborne said it is “incredibly important that companies and individuals pay the tax that is due.” The G-7, which includes the U.S., agreed to act together to stop tax avoidance, he said.

Double Speak

Yet the U.K. is aggressively moving to make it easier for multinationals to avoid taxes. Beginning in 2009, the country began switching from taxing worldwide income to solely taxing profit that companies claim are earned within the country, a so-called “territorial” system. It eliminated taxes on dividends paid to a U.K. company, even if coming from a subsidiary in a tax haven.

Beginning last month, the U.K. slashed the tax rate to 10 percent from the regular 23 percent rate on profit attributed to patents and intellectual property to lure research and technology jobs.

Yvette Hodgson, a spokeswoman for the U.K. Treasury, said the government is “committed to creating the most competitive corporate tax system in the G20.”

“Global tax rules have stood still for almost a century,” Hodgson said. “Britain is leading the international effort to bring them into the twenty first century.”