Friday, June 05, 2009

Switzerland: companies in one tax haven seek other tax havens

Recently we have highlighted separate reports, one by the US General Accountability Office (GAO) looking at US companies, and subsequently by TJN looking at companies in the UK, the Netherlands and France, which looked at where these companies had their tax haven subsidiaries. Now the Swiss magazine Hebdo has published its own study. It's in French, but the graph they use illustrates something noteworthy. (Click on it to enlarge it.)

We have the usual suspects, of course: the Cayman Islands, Bermuda, Luxembourg, Ireland, Singapore, Hong Kong, and so on. But these pale into insignificance in the face of the two big ones: Delaware, in the United States, and the United Kingdom (more precisely, we'd add: The City of London).

Of the firms listed on the Zurich SMI, a third of their 841 subsidiaries are located in tax havens, Hebdo's research indicates. This is an under-estimate, they stress, since it only includes subsidiaries controlled more than 50% by the parent company.

What is Delaware's attraction?

"A federal state which does not tax profits realised outside the jurisdiction, and where there are no requirements for them to by physically present."

The two big Swiss banks, Crédit Suisse and UBS, have 200 entities there alone. Click on the map above, and see which are the companies with the biggest share of their subsidiaries in tax havens. Taking, arbitrarily, 40% as the cut-off point, this produces a list consisting of UBS (42%), Crédit Suisse (49%), Julius Baer (62%), Zurich Financial Services (ZFS, 47%) and Swiss Re (60%.) Well, who would have guessed it: they are all financial services entities. As our Senior Adviser Sol Picciotto recently noted in the Financial Times (as an aside, today's blogger is co-author of an FT comment piece today, though not under a TJN name as this is not a core TJN issue):

"In recent separate surveys by the US Government Accountability Office and the Tax Justice Network, the largest user of tax havens in every country surveyed was a bank. Tax authorities have enormous problems puzzling out these structures. If they can, it is often hard to characterise them as shams."

So this Swiss survey, which uses TJN's list of tax havens as its reference, complements what Picciotto noted. Hebdo rightly notes that the OECD's recent list of tax havens, which we have sorely criticised, absolves these two enormous tax havens, Delaware and London.

Hebdo asked IRS commissioner Doug Shulman why Delaware was not classed as a tax haven:

"He excused himself from commenting on the fiscal practices in Delaware. Perhaps another time."

It noted the irony of majority state-owned Swisscom having subsidiaries in Jersey, Delaware, Liechtenstein and Singapore.

Why all these tax haven subsidiaries? The article quotes Pascal Saint-Amans of the OECD as saying that transfer pricing, involving opacity of tax havens, is behind a lot of it; certain types of firms (such as Big Pharma, where Switzerland has strength) are especially suited to locating things such as profitable trademarks in low-tax or no-tax jurisdictions, to cut their tax bills. We are pleased to note that Country By Country reporting is cited as a way of addressing this issue.

Bit by bit, the research into this crucial subject is pushing forwards.


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