Ninety-eight of the 100 biggest groups listed on the London stock exchange use tax havens, according to the charity ActionAid, showing ‘just how embedded the use of tax havens is in the structures of nearly all Britain’s biggest companies’.
However, the anti-poverty group accepted that there is no standard definition of ‘tax haven’ and that its research, widely reported in the national press, did not in itself ‘prove tax avoidance’.
ActionAid used a list of 50 ‘tax havens or financial privacy jurisdictions’ compiled in 2008 by the US Government Accountability Office. That list included Ireland, the Isle of Man, Jersey and Guernsey. ActionAid added Netherlands and Delaware, which it described as ‘important tax havens’.
ActionAid's research suggested that the FTSE 100 groups ‘comprised 34,216 subsidiary companies, joint ventures and associates’, and ‘38% (8,492) of their overseas companies are located in tax havens’.
Only two groups, Fresnillo and Hargreaves Landsdown, did not declare what ActionAid called ‘tax haven companies’.
The findings are of particular concern, the charity said, because many FTSE 100 groups are set to benefit from plans to ‘give multinational companies using tax havens an £840m tax break by relaxing the very rules designed to prevent tax haven abuse’.
ActionAid’s figure is a reference to the estimated ‘exchequer impact’ of changes to the UK’s controlled foreign companies legislation.
In its June 2011 consultation document on the CFC reform the government also identified benefits to the UK economy, saying the changes would ‘allow businesses based in the UK to be more flexible and internationally competitive [and] encourage more businesses to be headquartered here supporting the government’s ambition to promote private sector investment and growth’.
The reform reflects a desire on the part of the UK government to move towards a ‘more territorial’ tax system. ‘To improve the competitiveness of the corporate tax system the UK tax base will focus more on taxing profits economically derived from UK activity, rather than from worldwide business,’ HM Treasury said.
Critics have warned that the reform will provide an incentive for multinationals to locate business in tax havens. But some tax experts argue that the UK needs to be more competitive.
Sara Luder, Head of Tax at Slaughter and May, told Tax Journal last month that ‘for corporate tax at least we probably do not need to move too much further, once we sort out the CFC rules’.
‘What we need is a tax system that is not a disincentive to base yourself here, and we are getting much closer to getting the balance right,’ she said.
ActionAid said the ‘biggest tax haven user overall’ was the advertising group WPP, ‘which has 611 tax haven companies’.
A WPP spokesman told Tax Journal: ‘We have come top of the table because of our international spread of business and our multibrand business model and not because of any tax planning initiatives. We have over 150 separate brands internationally and most of those brands are multilocation and many are truly global.’
WPP operates in more than 100 countries. The group, which relocated to Ireland in 2008, indicated in March this year that it will return to the UK in 2013 following the enactment of the CFC reforms.
‘The banking sector makes heaviest use of tax havens, with a total of 1,649 tax haven companies between the “big four” banks,’ the charity said. ‘They are by far the biggest users of the Cayman Islands, where Barclays alone has 174 companies.’
As a global bank, Barclays has a significant number of foreign operations incorporated locally, a spokeswoman said. ‘We also use foreign incorporated companies for securitisations, fiduciary services, and wealth fund management purposes.
‘UK and foreign subsidiaries are reported as part of an annual return filed with UK Companies House, as required by the Companies Act 2006. All foreign subsidiaries are included in returns to HMRC either because they are UK tax resident and file UK tax returns or because they are listed on returns giving information on income earned that may be subject to UK tax under [the CFC] legislation.
‘As regards Cayman Islands incorporated companies used by Barclays, the majority of these are managed and controlled in the UK and are therefore subject to tax in the UK. Income arising in a company that is non UK resident is subject to UK taxation under the UK CFC legislation unless the company fits within a specific exemption. The UK tax position in respect of the income earned in CFCs is agreed with HMRC as part of Barclays tax filing obligations.’
She added that Barclays was committed to reducing this year, by ‘a significant number’, its portfolio of Cayman companies.
Ninety-eight of the 100 biggest groups listed on the London stock exchange use tax havens, according to the charity ActionAid, showing ‘just how embedded the use of tax havens is in the structures of nearly all Britain’s biggest companies’.
However, the anti-poverty group accepted that there is no standard definition of ‘tax haven’ and that its research, widely reported in the national press, did not in itself ‘prove tax avoidance’.
ActionAid used a list of 50 ‘tax havens or financial privacy jurisdictions’ compiled in 2008 by the US Government Accountability Office. That list included Ireland, the Isle of Man, Jersey and Guernsey. ActionAid added Netherlands and Delaware, which it described as ‘important tax havens’.
ActionAid's research suggested that the FTSE 100 groups ‘comprised 34,216 subsidiary companies, joint ventures and associates’, and ‘38% (8,492) of their overseas companies are located in tax havens’.
Only two groups, Fresnillo and Hargreaves Landsdown, did not declare what ActionAid called ‘tax haven companies’.
The findings are of particular concern, the charity said, because many FTSE 100 groups are set to benefit from plans to ‘give multinational companies using tax havens an £840m tax break by relaxing the very rules designed to prevent tax haven abuse’.
ActionAid’s figure is a reference to the estimated ‘exchequer impact’ of changes to the UK’s controlled foreign companies legislation.
In its June 2011 consultation document on the CFC reform the government also identified benefits to the UK economy, saying the changes would ‘allow businesses based in the UK to be more flexible and internationally competitive [and] encourage more businesses to be headquartered here supporting the government’s ambition to promote private sector investment and growth’.
The reform reflects a desire on the part of the UK government to move towards a ‘more territorial’ tax system. ‘To improve the competitiveness of the corporate tax system the UK tax base will focus more on taxing profits economically derived from UK activity, rather than from worldwide business,’ HM Treasury said.
Critics have warned that the reform will provide an incentive for multinationals to locate business in tax havens. But some tax experts argue that the UK needs to be more competitive.
Sara Luder, Head of Tax at Slaughter and May, told Tax Journal last month that ‘for corporate tax at least we probably do not need to move too much further, once we sort out the CFC rules’.
‘What we need is a tax system that is not a disincentive to base yourself here, and we are getting much closer to getting the balance right,’ she said.
ActionAid said the ‘biggest tax haven user overall’ was the advertising group WPP, ‘which has 611 tax haven companies’.
A WPP spokesman told Tax Journal: ‘We have come top of the table because of our international spread of business and our multibrand business model and not because of any tax planning initiatives. We have over 150 separate brands internationally and most of those brands are multilocation and many are truly global.’
WPP operates in more than 100 countries. The group, which relocated to Ireland in 2008, indicated in March this year that it will return to the UK in 2013 following the enactment of the CFC reforms.
‘The banking sector makes heaviest use of tax havens, with a total of 1,649 tax haven companies between the “big four” banks,’ the charity said. ‘They are by far the biggest users of the Cayman Islands, where Barclays alone has 174 companies.’
As a global bank, Barclays has a significant number of foreign operations incorporated locally, a spokeswoman said. ‘We also use foreign incorporated companies for securitisations, fiduciary services, and wealth fund management purposes.
‘UK and foreign subsidiaries are reported as part of an annual return filed with UK Companies House, as required by the Companies Act 2006. All foreign subsidiaries are included in returns to HMRC either because they are UK tax resident and file UK tax returns or because they are listed on returns giving information on income earned that may be subject to UK tax under [the CFC] legislation.
‘As regards Cayman Islands incorporated companies used by Barclays, the majority of these are managed and controlled in the UK and are therefore subject to tax in the UK. Income arising in a company that is non UK resident is subject to UK taxation under the UK CFC legislation unless the company fits within a specific exemption. The UK tax position in respect of the income earned in CFCs is agreed with HMRC as part of Barclays tax filing obligations.’
She added that Barclays was committed to reducing this year, by ‘a significant number’, its portfolio of Cayman companies.
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