Gimme shelter

Finbarr Bermingham reports on the widespread use of tax havens by FTSE 100 companies

A recent report by the international development charity ActionAid has revealed the extent to which FTSE-listed companies use tax havens. The FTSE 100 companies have a combined total of 34,216 subsidiaries (companies owned by the parent company, which may be foreign companies). Approximately 25 per cent of these are registered in favourably taxed areas. Only two of the 100 do not use such financial loopholes: Hargreave Lansdowne (a financial services company) and Fresnillo (a mining company). The most prolific user of tax havens is the advertising group WPP, which has 611 subsidiaries in these jurisdictions.

While an exact definition is the cause of much debate, a tax haven is generally accepted as being a country or region in which certain taxes are levied at a low rate (or not at all), or which has comparatively lower requirements for corporate accounts' transparency, or which only imposes a low levy on cross-border income transfers. The report, entitled Addicted to tax havens: the secret life of the FTSE 100, names the US state of Delaware, the Netherlands, and the Republic of Ireland as the three tax havens most commonly used.

The choice of haven is often dictated by the parent company's industry, and what it is hoping to achieve. For example, the Cayman Islands are known to offer favourable rates for hedge funds and financial services companies. For private banking, Switzerland is the loophole of choice. The US state of Delaware offers unparalleled secrecy: listed companies don't have to disclose their accounts, or ownership details. Perhaps the most controversial on the lists because of their EU membership, the Netherlands and Ireland have been used extensively because of their low levies on cross-border incomes. These low charges allow companies to transfer profits to other offshore holdings, where they may be subject to lower taxes.

Using a tax haven is not illegal, and "tax planning" often forms an integral part of corporate financial strategy and City dealmaking. However, companies using tax havens have come in for much criticism, in ActionAid's report and elsewhere, for their lack of transparency in their corporate affairs and for restricting the government's taxation income, thereby placing an extra financial burden on other British taxpayers.

A spokesperson for the Treasury responded to the report, saying: "The Government has demonstrated a clear commitment to tackling all forms of tax avoidance and evasion."

But not since the Poll Tax riots ripped through the heart of Britain in 1990 has tax caused so much debate among the general public. Anti-capitalist protests have swept the US and Europe, with demonstrators calling for a higher levy to be placed upon the highest earners, and for UK-based companies to be subject to more stringent restrictions on the mechanisms they use to limit the amount of tax they pay. UK Uncut's protests against Vodafone (who they say have saved billions through unfair tax breaks) are fresh in the minds of those camped out at St Paul's and further afield. Reports like these will fan these flames.

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