John Christensen ■ The Offshore Wrapper: a week in tax justice #57
The Offshore Game
This week TJN released a major, ground-breaking study into offshore finance and sport. The report seeks to quantify the amount of money from offshore flowing into the UK professional football leagues.
TJN looked at both the value of equity and the value of loans held by offshore holding companies in UK football clubs. In total we found £3bn in finance in 34 teams. This means that 1 in 4 football teams now has significant ownership or financing from offshore.
That finance came from around the globe: Malaysia, Delaware and India, as well as from the more widely recognised tax havens of the British Virgin Islands, the Cayman Islands and the Channel Islands.
In some cases it was neither possible to find where the holding companies owning football clubs came from nor who they were owned by.
For more information on the report and the project you can check out our dedicated website.
Bangladesh to look into ‘sneaky’ cross border tax deals
Bangladesh is stepping up its efforts to crack down on multinational tax avoidance. The government is establishing a special unit to investigate transfer pricing. The unit will monitor the 175 multinational companies currently trading in the country and paying particular attention to companies with large financial transactions.
This is part of a government effort to stop companies shifting profits into tax havens and it appears to be accepted by all that this is a serious problem in the country. Industry insiders quoted by the Financial Express blamed the higher tax rate in Bangladesh for giving companies the incentive to shift profits offshore, though experience across the entire world has shown that cutting corporate tax rates hasn’t reduced the incidence of tax avoidance.
General Electric pays some tax
There has been a huge row in Washington in recent years over what to do about the giant tax loophole at the heart of the US tax code which encourages multinational companies to park their money offshore. The US tax rules allow profits made abroad to remain untaxed until such time as they are repatriated to the United States, which could be a long, long wait.
This has led to companies stashing vast amounts of cash in offshore tax havens, lobbying for yet another amnesty from their friends in Washington. Many of these companies have used this cash to buy US Treasury Bonds — so we find the situation of US taxpayers effectively making interest payments that boost major corporates’ offshore cash piles.
The large accumulations of offshore cash has also led to the practice of corporate inversions. This is where a company will use its offshore cash to buy another foreign company based in a low tax jurisdiction (often the UK or Ireland), but the foreign company that has been bought becomes the legal parent, even if in practical terms a lot of the management stays put at the original headquarters. This legal change of jurisdiction can create a huge tax bonanza for the corporation, and a headache for the taxpayers of the country that has just been deserted.
Everyone agrees this is a problem, but no one agrees on how to solve it. Tax reform in the U.S. has stalled.
But this week saw welcome news from General Electric, one of the largest US companies. The company has announced that it will go through a significant restructure, selling off its bank, GE Capital and other non-core businesses. As part of this it will repatriate around $10-$15bn in assets and pay $4-$6bn in taxes.
It is doing this voluntarily, without waiting for tax reform. After the announcement, GE shares rose 8%. Much of this was because it was shedding a lot of financial nonsense that it had got itself mixed up with. But perhaps this suggests that companies with billions held offshore can survive perfectly well if they bring the money home. Paying tax isn’t bad for business after all.
A blast from the Cayman Islands
The issue of tax avoidance has been front and centre of the British election campaign with people going to the polls in just a few weeks. Almost every political party from right to left is pledging to be harder on tax avoiders amid hysteria over the UK’s budget deficit.
Against that background, David Cameron, the current UK Prime Minister, can only be thinking that the latest intervention from Lord Blencathara is unhelpful.
Lord Blencathra, a Conservative member of the House of Lords and a former Home Office Minister, is a devotee of secrecy. When he was an MP he tried to stop information about MPs expenses being subject to freedom of information. As a member of the House of Lords he became a lobbyist for the Cayman Islands government – and failed to declare the terms of his engagement with the tax haven when making representations in their support.
It has now emerged that the noble lord wrote to the Cayman Islands government last year to tell them that Mr Cameron’s public statements about cracking down on tax havens were just political posturing and ‘an attempt to distract the G8 and EU’ who were at the time pursuing the idea of a financial transaction tax, that would “hurt the City” of London. A spokesman for the Conservative Party has said, “this story is nonsense from start to finish”.
However, this isn’t the first time the Prime Minister’s commitment to fighting tax havens has been questioned. A couple of years ago the Guardian newspaper reported that Mr Cameron’s father made millions setting up tax avoidance schemes in Panama and other tax havens.
The documents revealed by the newspaper relate to an investment funds which Ian Cameron set up in the 1980s. The fund documents are explicit that the funds will be set up in a way which means they will avoid UK taxation.
What is unclear is how much the Cameron family benefited from these structures and whether they declared tax in the UK on their personal income.
The UN estimates that in some countries as much as 25% of government procurement budgets is lost to corruption. This is a scary statistic when we consider that globally governments spend $9.5 trillion on procurement a year, and this is not just a developing world problem.
Global Witness has released an interactive map showing how anonymous shell companies have been involved in ripping off governments around the world. This includes the following shocking examples:
• Defence contractors used a UAE-based anonymous company to overcharge the U.S. government in a $48 million scheme to supply food and water to troops in Afghanistan.
• American conspirators used sham companies from North Carolina, Nevada and Tennessee to steal more than $2 million from subcontractors who they tricked into fulfilling U.S. procurement contracts.
• Three senior Angolan officials hid their interests in companies that were awarded lucrative stakes in the impoverished country’s oil sector, despite the company’s lack of any previous experience in the industry.
• A Texas-based company paid $132 million to an anonymous Gibraltar company that it intended to use, in part, for bribes to win contacts to build a liquefied natural gas plant in Nigeria.
Global Witnesses’ interactive map with more details can be found here.
2022, Hopes and Fears: the Tax Justice Network podcast
Jersey’s Pandora’s Boxes: the Tax Justice Network podcast, December 2021
November 2021 Spanish language podcast, Justicia ImPositiva: Breve historia de los paraísos fiscales #65
Rethinking Limited Liability: Beneficial Ownership Transparency to Reform the Liability System, working paper
Tax Justice Network Portuguese podcast #30 Pandora Papers provam a podridão do sistema financeiro
October 2021 Spanish language podcast, Justicia ImPositiva: Los Pandora Papers, el Bitcoin en El Salvador y crisis de la inmobiliaria en China #64
Pandora Papers shows transparency failure is an accountability failure
Isle of Man banking data leak reveals how sharing data can identify offshore strategies and improve beneficial ownership
Isle of Man banking leak: Analysing banking data to reveal offshore strategies
29 September 2021