Since the start of the year, political leaders have been falling over themselves to talk tough on tax dodging. David Cameron candidly admitted that, “I worked in corporate Britain and I know how companies use the complexity of the tax system to endlessly reduce their tax payments.” Nick Clegg made tackling tax avoidance one of the top priorities for the Liberal Democrats in 2012, while Ed Miliband called on the government to end tax haven secrecy.
But plans put out for consultation by the Treasury recently will hand a shocking £1 billion to British multinational companies that use tax havens. Unmentioned is the fact that these reforms will make it easier for British multinationals to use tax havens to dodge taxes in developing countries.
Multinationals have been lobbying hard to relax UK tax haven rules, and it seems they’ve got their way. Unless we do something about it, these proposals will become law by the summer. We estimate this could cost developing countries a massive £4 billion, all of which will go straight back into the coffers of big business.
Our research recently unveiled the massive extent of tax haven use throughout the FTSE 100. Ninety-eight FTSE companies are using tax havens, where you'll find a whopping 38% of all of their overseas companies located.
High street banks are the heaviest users with 1,649 tax haven companies shared between Barclays, HSBC, RBS and Lloyds. Barclays has 174 companies registered in the Cayman Islands alone.
Our research raises real questions about the impact on developing countries, which lose three times more to tax havens than they receive in aid each year. The biggest ten tax haven users have a total of 3,833 companies between them in tax havens, but they also have 1,951 companies in developing countries. If we want these countries to become independent of development aid, as well as to end poverty, all companies need to pay their fair share of taxes in the countries they operate in.
Spare us the rhetoric
Only four months ago, David Cameron and the rest of the G20 were busy promising to, “reiterate the importance of our commitment to deal effectively with tax havens…including the fight against illicit capital flows, considering their impact on development.”
Vince Cable has said that, “much of the shadow banking sector, a major contributor to the economic crisis, was only possible because of tax haven secrecy,” while George Osborne promised to, “target tax evasion and off-shore tax havens. Everyone must pay their fair share.”
Meanwhile, International Development Secretary Andrew Mitchell told an audience of campaigners that, “everyone should pay their taxes due…we champion transparency.”
It seems that when they say ‘everyone’, they don’t include influential UK companies in their definition.
Damage to development
Tax dodging by multinational companies has a profound impact on developing countries. Take Zambia. Two in every three Zambians live below the poverty line. The country spends less per child on education than any other country in southern Africa. Teachers have to deal with classes that average over 60 pupils.
Several large western companies do business in Zambia. But many are facing big questions about their tax contribution – or lack of it. Brewing giant SABMiller, for example, lowers its tax bill in Zambia by making huge payments into tax havens like Switzerland and the Netherlands. Barclays – proud provider of Zambia’s largest ATM network – is one of the heaviest users of tax havens.
Meanwhile, a leaked audit report on FTSE-listed mining giant Glencore shows that Zambia could be losing as much as £76 million in corporation tax a year from just one of their copper mines, owned through a string of companies located in tax havens such as Bermuda, Luxembourg and Switzerland.
In response to criticism in the press, SABMiller and Barclays cited tough UK anti-tax haven rules as their defence. But at the same time, they’ve been lobbying hard behind the scenes to get them changed. Alongside other African countries, the Zambian government is taking action to stem the tide of tax dodging. But they’ll continue to struggle while multinational companies have the freedom to choose tax avoidance over paying up.
Now more than ever, politicians need to turn their words into action. Stopping a new tax loophole that will cost developing countries billions must be their top priority.
Please take action now.
Want to know more about tax havens? We have five signed copies of Nicholas Shaxson's brilliant exposé, Treasure Islands and the men who stole the world, to give away. Just email your name and address to email@example.com by 31 March and the first five out of the hat win.