[Ip-health] Firms' secret tax avoidance schemes cost UK billions

[Miles Teg]

Snip

=95 Two major drug firms have shifted ownership of their brands to tax
havens in the Caribbean. Their UK operations can then be made to pay
royalties for the use of the trademarks, reducing their profits and the
amount of tax due in this country.

Firms' secret tax avoidance schemes cost UK billions
Investigation into the complex and confidential world of tax

* The Guardian, Monday 2 February 2009
* Article history

British taxpayers are being left to plug a multibillion-pound hole in
the public finances as hundreds of the country's biggest companies
increasingly employ complex and secretive tax arrangements to limit the
amount they hand over to the exchequer.

An extensive Guardian investigationhas examined the accounts of the UK's
biggest companies - many of them household names - and discovered a
series of sophisticated tax strategies which, critics say, amount to an
almost unstoppable tide of perfectly legal corporate tax avoidance.

The veil of confidentiality that covers these tax avoidance schemes is
so difficult to penetrate that nobody knows exactly how much tax goes
missing each year. But HM Revenue & Customs estimated that the size of
the tax gap could be anything between =A33.7bn and =A313bn. The Commons
public accounts committee put it at a possible =A38.5bn and the TUC said
=A312bn.

UK listed companies are not required to set out exactly how much UK
corporation tax they actually hand over to HM Revenue & Customs. When
the Guardian asked each FTSE 100 company to provide this information
only two offered a response.

Similarly each company was asked what its official policy on so-called
tax planning is and how this is implemented. No company was prepared to
answer the question directly. However, the investigation, which we
publish over coming days, has established that:

=95 The UK-based drinks giant Diageo plc has transferred ownership of
brands worth billions of pounds, including Johnnie Walker, J&B and
Gilbey's gin, to a subsidiary in the Netherlands where profits accrued
virtually tax-free. Despite average profits of =A32bn a year, it paid an
average of =A343m a year in UK tax - little more than 2% of its overall
profits.

=95 Two major drug firms have shifted ownership of their brands to tax
havens in the Caribbean. Their UK operations can then be made to pay
royalties for the use of the trademarks, reducing their profits and the
amount of tax due in this country.

=95 An internationally renowned corporation has structured itself so that
it is now simultaneously a British public company, tax-resident in
Amsterdam, but whose brands are Swiss-owned.

=95 The makers of an iconic British food product have shifted the rights
in it to a tax haven in Switzerland.

=95 A household name has been deliberately loaded with debt so that it no
longer has any profits to pay tax on.

=95 Top accountancy firms are charging =A3500,000 a time to invent
tax-avoidance schemes.

=95 Some UK-listed companies which have moved control to Dublin to benefit
from Ireland's low-tax regime appear to have little real presence there.

According to the National Audit Office, in 2006 more than 60% of
Britain's 700 biggest companies paid less than =A310m corporation tax, and
30% paid nothing.

Britain's top taxman, Dave Hartnett, told the Commons public accounts
committee last year that 12 major corporations had "extinguished all tax
liabilities in 2005-6" thanks to avoidance schemes.

Vince Cable, the Liberal Democrats' deputy leader, said last night: "The
scale of corporate tax-dodging exposed by the Guardian research is
absolutely mind-boggling. It will deeply anger households and businesses
who pay their fair share.

"The baroque complexities of corporate tax-avoidance schemes are similar
to the elaborate structures which have now devastated a substantial part
of the banking system. The tax authorities should stop trying to compete
in the complexity stakes and apply the general principle that if
companies deliberately seek to avoid taxation they should be penalised
and charged."

According to the Institute of Fiscal Studies, overall tax receipts -
including personal income tax - will be =A37bn lower next year than
forecast as a result of the downturn. The respected thinktank says key
Labour programmes face being squeezed, in particular health and
education spending. The result, say unions and campaigners, is that
ordinary taxpayers have to make up the difference. If the TUC estimate
of =A312bn is correct, it takes the average income tax contribution of
2.4m households just to fill the gap left by the perfectly legal tax
manoeuvres of big business. That =A312bn is the equivalent of around 480
new schools, 300 hospitals or more than 1.3m new nursery places.

Today, guardian.co.uk is also launching a unique interactive database of
the corporation tax figures recorded in the accounts of each FTSE 100
compay in the last four years. It reveals the low amounts of tax paid by
some, and a reluctance to supply meaningful numbers to the public.

Despite their efforts to shift profits out of the country and minimise
UK tax, the companies enjoy a range of important benefits by being based
in Britain and listed on the London stock exchange.

This has given them access to one of the widest pools of capital in the
world; they have enjoyed light-touch but respected regulation and high
corporate governance standards; and it has enhanced their international
reputations to be listed in the UK, helping them to attract the best
talent. Companies here also benefit from political stability and -
perhaps most important of all - the directors want to live near London

Many of the companies the Guardian looked at are already feeling the
effects of the recession on their profits so their tax bills will go
down. But campaigners insist that this makes the task of collecting
maximum tax revenues more, rather than less, urgent. Failure to do so,
they say, will put a massive strain on public finances already being
stretched to breaking-point.

Brendan Barber, TUC general secretary, said: "Tax avoidance is hollowing
out the tax system. With the rest of us having to fill the tax gap left
by Britain's most wealthy, there is a real threat to the future of
public services - especially as the recession takes its toll on normal
tax flows.

"It will be hard to maintain public support for tax when it looks
increasingly optional for big companies and the super-rich, who
increasingly float free from the network of mutual obligations that
underpin any civilised society."

As they watch tax receipts dwindle through a combination of legal
avoidance schemes and economic downturn, governments also face
international pressure to crack down on the entirely separate problem of
illegal tax evasion.

In the US, Barack Obama introduced the Stop Tax Haven Abuse Act in 2007
when he was still just an Illinois senator. Obama and his fellow
sponsors of the act, Democrat Carl Levin and Republican Norm Coleman,
claimed the US annual tax gap was approaching $100bn. "We need to crack
down on individuals and businesses that abuse our tax laws so that those
who work hard and play by the rules aren't disadvantaged," Obama said.

Political concern is growing across Europe. German chancellor Angela
Merkel launched hostilities against individual tax evaders after her
secret service bought computer discs from a whistleblower detailing the
bank accounts of thousands of wealthy Germans in the tiny Alpine tax
haven of Liechtenstein.

In Britain, the Revenue paid =A3100,000 for the same information about
individual UK tax dodgers and is now pursuing them. And just before
Christmas, Alastair Darling, the chancellor, launched a potentially
explosive review of British-linked tax havens.

http://www.guardian.co.uk/business/2009/feb/02/tax-gap-avoidance