Monday, March 23, 2009

Where on earth are you? Big companies in tax havens

Update June 2009: Swiss companies in tax havens

The Tax Justice Network, with the help of Alternatives Économiques in France and SOMO in the Netherlands, has just produced a new report with information that has never been published before. The executive summary starts like this:

"This report builds on a finding in the United States that 83 per cent of the largest US companies have tax haven / secrecy jurisdiction subsidiaries.

The report surveyed 97 of the largest quoted companies in the UK, the Netherlands and France. Of those companies all but one had tax haven subsidiaries. 99 per cent of the European quoted companies surveyed operate in tax havens. As in the USA, the largest user of tax havens in every country surveyed was a bank."

This gives the briefest summary. The rest of the executive summary says:

"As in the USA, the largest user of tax havens in every country surveyed was a bank. In the USA the largest user was Citigroup, in the UK it was Barclays plc, in France it was BNP Paribas and in the Netherlands ING. ING was also the largest single user of tax havens, with more than 2600 tax haven subsidiaries, putting it comfortably ahead of every other company in the survey. However, this may reflect a different pattern of recognising a subsidiary on its part from that used elsewhere.

The most popular tax haven in the world is Hong Kong. Hong Kong is followed by the Cayman Islands, then Singapore, Switzerland, Luxembourg, Bermuda, the British Virgin Islands, Jersey, Mauritius, the Bahamas, Guernsey, the Isle of Man, Panama, Costa Rica and the Netherlands Antilles in that order.

There are strong regional variations in the use of tax havens. US corporations use the Cayman Islands more than other locations, but also show a bias towards Bermuda, the British Virgin Islands, the US Virgin Islands and Barbados.

U.K. corporations are the biggest users of the UK Crown Dependencies as tax havens. French corporations have a bias towards using Switzerland and Luxembourg and it is only Dutch corporations that break this general rule. They seem to use more Far East tax havens such as Hong Kong and Malaysia, which significantly increases the apparent popularity of these locations in the survey results.

Undertaking this survey has not been without difficulty, particularly in the case of U.K. corporations. The 33 companies surveyed in the UK were selected on the basis of being those for which reliable data was available.

This, in itself, is indication of the enormous secrecy that surrounds the trading of these major corporations, many of which have turnovers bigger than nation states. Even though we have been able to locate some of the tax haven / secrecy jurisdiction companies that these multinational groups have created we know nothing about the following:
  • What these companies do in these places;
  • How much trade they undertake in these places;
  • How many people they employ in tax havens / secrecy jurisdictions;
  • How much profit they record in tax havens;
  • How much tax they do, or do not pay as a consequence;
  • The value of assets hidden from mainstream financial regulators as a consequence of their operating outside the normal regulatory environment by being located in tax havens.
All this information would be available on public record had the companies surveyed been required to present their global financial results on a ‘country by country’ basis[2].

Country by country reporting would require that a multinational corporation published the name of each country in which it operates, without exception, the names of all its companies trading in each country in which it operates without exception, and a profit and loss account and limited balance sheet data for each such country in its annual financial report.

This report argues that only through the introduction of country by country reporting will it be possible to assess whether multinational corporations and banks are properly regulated, pay their taxes, and do not abuse the countries in which they operate.

This last point is especially important. Christian Aid has estimated that developing countries lose at least $160 billion a year in lost tax revenues from the abuse of transfer pricing and accounting rules by major multinational corporations. This abuse would have been highlighted, or eliminated, if the corporations in question had been required to account on a country by country basis with enormous benefit arising to the developing world in consequence.

This report does not suggest that anything illegal has been happening. But our findings suggest that current legal practice has to change substantially for the benefit of the ordinary people of this world, wherever they reside."

Richard Murphy, who directed the research for TJN, pointed out:

No one could have published that ordered list of tax havens before now.

We could not have said with certainty that banks are the biggest users before now.

We could not have published the data on we do on regional significance of tax havens before now.

Each of these findings is important.

But the most important finding is by far the simplest: tax havens are an integral part of the business system. 99% of all European companies surveyed had a tax haven subsidiary. Most had many.

They are also a cancer that is helping destroy it from within, as John Kay suggested in the Financial Times this morning.

This survey has shown just how far we are from understanding how our markets work, how money flows, and why businesses are structured as they are. We cannot deliver optimal results in that case.

That last point is crucial.

This study directed by Richard Murphy follows our earlier blog describing the research by the French publication Alternatives Économiques, which was an integral part of the study. Markus Meinzer was centrally involved in the research too. Many thanks to all.


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