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Chasing the corporate tax avoiders & fighting the cuts
All the UK’s major banks make extensive use of tax havens in the course of their business. As a survey for the TUC showed, in 2008 Barclays were the biggest user but all four of our leading High Street banks had large numbers of subsidiaries in locations such as Cayman, Jersey, The Isle of Man, Bermuda, the Bahamas and Luxembourg.
One bank stands out from the crowd though. As MP Chuka Umunna showed in questioning of Barclay’s boss Bob Diamond before the Treasury Committee of the House of Commons in January 2011, his bank had 181 subsidiaries in the Cayman Islands alone in 2010, an extraordinary increase from 143 in 2008. Bob Diamond admitted he had no idea how many companies the bank of which he is chief executive had in the island, but said they were there for ‘tax efficiency’. In plain, straightforward terms that means they shift the tax burden from the bank onto other people.
In June 2008, after more than a century and a half in the UK, Boots moved out of the country to Switzerland. The British household name had been acquired, along with its company, Alliance Boots, in Europe’s largest private equity deal in 2007, thanks to £9.3bn of borrowing from banks and other investors. Interest payments on the Alliance Boots debt in 2008 were so large they wiped out profit in the UK – and the tax that used to go with it. HMRC rules allowed the company to set interest payments on its debt against profits for tax purposes, a benefit to investors that has helped to drive equity deals.
Ten years ago the Boots group generally paid about one-third of its profits in UK tax. The revenue could expect a tax charge around £120-£150m each year.
Then came the move to the low-tax Swiss canton of Zug. After huge interest payments, its worldwide profits last year were £475m. It is hard to see which parts of the company are now making what, but the cash flow statement for the year to March 2010 shows that just £14m was recorded as the tax charge on those profits – that is, just 3% of profits.
The company said in a statement: “Alliance Boots and the companies of its group comply fully with all applicable tax laws in each of the countries where they do business, including in the UK. It is a British business which continues to have its headquarters in Nottingham and is VAT registered.”
Many large music retailers such as HMV, Amazon, Tesco, WH Smith, Sainsbury, Asda and many others are engaged in VAT avoidance through the Channel Islands.
The current Low Value Consignment Relief (LVCR) for goods imported from the Channel Islands lets retailers import goods worth up to £18 into the UK VAT-free. As a result every major music retailer now sells CDs and DVDs online using offshore centres, the goods having been shipped there first to be returned to the UK tax free.
Industry pressure and the rise in taxpayer protests have flagged up the perfectly legal avoidance technique as ripe for repeal and prompted the Treasury to tell The Guardian it was “actively reviewing” LVCR as part of the wider simplification of the UK tax system.
Offshore retailers gained an even bigger advantage over the high street on 4 January when VAT went up to 20%.
The amount lost to HM Treasury as a result of this arrangement is now thought to exceed £150 million a year – enough to pay for school sport