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Tax haven structures are ‘near-universal’ among FTSE 100, says ActionAid

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The presence of the UK’s largest companies in tax havens has not diminished despite media scandals over tax avoidance and a promised crackdown on tax havens, according to ActionAid, the anti-poverty charity.

Ninety-eight of the FTSE100 multinational groups have companies in tax havens, as in 2011, ActionAid said yesterday. But Deloitte’s head of tax policy challenged the charity’s definition of a tax haven earlier this year.

Yesterday Paul Morton, head of group tax at Reed Elsevier, Tax Journal’s parent company, suggested that the latest study may require “refinement”. But it was an interesting contribution to “an important discussion”.

The Guardian yesterday quoted Lord Oakeshott, the Liberal Democrats’ former Treasury spokesman, as saying: “Tax transparency must start at home. ActionAid's devastating research makes us ashamed to be British. Far too many of Britain's top companies wash billions of profits through pipelines of British tax havens to vanish behind shiny brass plates in shady places.”

ActionAid stressed that it was not accusing FTSE100 companies of tax avoidance or evasion. Its findings highlighted “the extent of multinationals’ operations in jurisdictions that can provide substantial tax advantages and help obscure information”.

Nearly 40% of the overseas subsidiary and associate companies of the FTSE100 are now registered in tax havens, ActionAid claimed. The charity’s list of tax havens was based on a list of 50 jurisdictions compiled by the Government Accountability Office of the US Congress in 2008.

“We have added the Netherlands and the US state of Delaware, which are important tax havens but were not included in the US Congress list,” it said. “Both have key tax haven characteristics, providing special tax exemptions and discretionary tax rulings which make much foreign income tax-free or nearly tax-free, and are consequently central to many international tax planning schemes. Each has been named by governments (including the US government) as tax havens.”

Mike Lewis, ActionAid’s tax justice policy adviser, said: “Tax havens are one of the biggest hidden obstacles in the fight against global poverty. Poor countries lose an estimated three times more money to tax havens than they receive in aid each year – money needed to build roads, fund schools and finance developing countries’ own fight against hunger and poverty. Four years after G20 leaders promised an end to tax havens, tax haven structures are near-universal amongst the UK’s biggest multinationals.

“Now, with David Cameron promising action on tax havens at this year’s G8, the problem is on the UK’s doorstep. The UK is responsible for one in five of the world’s tax havens – that’s more than any other country.”

According to ActionAid’s data, Reed Elsevier – which owns Tax Journal’s publisher LexisNexis UK – is one of 24 FTSE companies with more than 100 subsidiaries in tax havens.

The data lists 101 Reed Elsevier subsidiaries, comprising 68 in Delaware, 16 in the Netherlands, two in Ireland, six in Hong Kong, eight in Singapore and one in the British Virgin Islands.

Paul Morton told Tax Journal: “The Action Aid study is an interesting exercise, but may require some further refinement. For example, companies based in Delaware probably shouldn’t be included as [being in] tax havens, since they are subject to 35% federal income tax and state taxes. Similarly, the corporate tax rate in the Netherlands is now higher than that in the UK. In total, more than 80% of the Reed Elsevier companies on the list are in these jurisdictions, while the remainder are local trading companies or holding companies. Nonetheless, this is an important discussion and efforts to achieve a common understanding of the issues remain worthwhile.”

In February Bill Dodwell, head of tax policy at Deloitte, criticised ActionAid’s claim in October 2011 that its research showed “just how embedded the use of tax havens is in the structures of nearly all Britain’s biggest companies”.

Dodwell, writing in Tax Journal, argued that it was “absurd” to treat Delaware as a tax haven. It was “the main state in which US companies are formed”, he said. “Why? Simply because whilst every US state has its own company law, it is easier to have a common system. Delaware has put great effort into maintaining its company law and has thus become the registry of choice. Yet Delaware companies – like all US companies – pay US corporate tax at 35% on their profits. They also pay state tax in the states where they operate.”

Dodwell also challenged the inclusion of Ireland, Switzerland and the Netherlands.