FTSE 100 companies criticised over use of tax havens

MANY of the UK’s largest companies are persisting in running subsidiaries in low-tax jurisdictions, according to research produced by the charity ActionAid.

In all, more than 8,000 subsidiaries or joint ventures are being run through tax havens by FTSE 100 companies, while only two of the country’s biggest listed companies were found not to run any such entities.

The report comes hot on the heels of the weekend’s G7 meeting in Aylesbury, Buckinghamshire, at which George Osborne and his opposite numbers from US, Germany, Japan, Italy, France and Canada pledged collective action against tax avoidance, according to the BBC.

“We must put regimes in place… to deal with failing banks and to protect taxpayers and to do so in a globally-consistent manner,” Osborne said.

They also discussed the OECD’s work on mitigating base erosion and profit-shifting, although greater detail on that is expected later in the year.

Transfer pricing is considered among the main causes of profit shifting, whereby multinational corporations value and purchase goods and services moving across international borders from one of the group’s corporate entities to another.

An ‘arm’s length’ principle is typically applied, which sees internal transactions within the group charged at the market rate, although multinationals have recently been accused of using the process to shift profits to low-tax jurisdictions.

According to the charity’s report, nearly 40% of the FTSE 100’s 22,000 overseas companies are located in tax havens, while ten multinational groups are themselves headquartered in such jurisdictions, up from nine in 2011.

Banking is the most prolific sector for use of low-tax jurisdictions, with 58% of FTSE 100 banks’ overseas companies in havens, equating to 1,780 companies.

Developing countries constitute almost a third of the countries in which FTSE 100 banks operate, yet they have 13 times as many companies located in tax havens as in developing countries.

ActionAid tax justice policy adviser Mike Lewis criticised big business for its use of offshore jurisdictions, suggesting doing so drains funds away from poor nations.

He 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.