Your money is in a tax haven
Very few of us would consider ourselves eager users of tax havens. Far from it! Some of you would be protesting on the streets against them before even a penny of yours found its way in one. Yet it’s not just your pennies, but a good handful of your pounds that have found their way into the global tax havens you so loathe.
Have you made a purchase on Amazon recently? I know I have. Affordable (albeit still pricey) textbooks have to be bought somewhere. Their latest annual report indicates their paying a 13% tax rate in the US. This is despite US corporation tax set at 35%. It’s worse in the UK. How do they get away with this I hear you cry? Luxembourg transfer pricing. In a nut shell, it is the price one of Amazon’s subsidiaries (e.g. the one in Luxembourg) charges another subsidiary (e.g. the UK one) for goods or services. It can (and is) used to manipulate where a company’s taxable profits will sit. The result is most of Amazon’s European profits recorded in Luxembourg despite it having a population of under 0.6 million people. That’s under 1% of the UK’s population. Either those 0.6 million people are on Amazon 24/7 or something isn’t adding up….
Starbucks, Google, and a host of other firms have similar systems in place. Two months ago, the European Commission ruled that Apple should pay the Republic of Ireland €13billion (£11.6 billion) in back taxes. Your first thought might have been, ‘Ah! Serves them right, now the government can use that money on the best possible outcome.’ What actually happened? The Republic of Ireland’s cabinet agreed to appeal against the ruling and are not asking for the €13billion back. The madness is almost beyond parody. This is without going into the low-tax jurisdictions that many pension funds and investments operate in.
Many of us have heard of the now infamous Panama Papers. It is easy to think that Panama is an exotic steroid injected City of London with flash business attire worn by armies of bankers and lawyers. But it isn’t. According to the Department of International Development (DFID) 2015/16 accounts, nearly half a million pounds of tax payer funded aid was spent in Panama during 2014. That same year, the World Bank noted that over 8% of Panama’s population are living in extreme poverty. The country is ranked in the top 15 most unequal in terms of income distribution.
Sure, it’s a scandal that certain individuals used formal tax havens. But the real scandal is why the world is so quiet when our money passes through ‘tax efficient’ corporate structures. Tax havens by any other name.
By Nabeel Alhassan