Almost all of the FTSE 100 companies base their subsidiaries in tax-havens to legally avoid paying tax, according to a report from the charity ActionAid.
The financial sector has by far the largest “secret life” abroad, according to the charity, with HSBC, Barclays, Lloyds Group and RBS having up over one and a half thousand subsidiaries based in tax havens, despite being bailed out by UK taxpayers’ money throughout the worsening financial crisis.
In the Cayman Islands, Barclays alone has 174 companies. Advertising giant WPP made the most use of tax friendly bases, with over 600 subsidiaries basing their operations in tax havens, ActionAid said.
Tax avoidance costs the UK Exchequer more than £18.5 billion per year according to a report by Richard Murphy FCA of Tax Research UK. That would be enough to take 4.5p of the basic rate of UK income tax, reducing it to less than 16 per cent, according to the research.
Areas are known as tax-havens when they offer a reduced or even zero rate of tax in order to attract foreign capital. Currently, the UK has a number of these territories under its jurisdiction, including the Isle of Man, Jersey and Guernsey.
Companies that fail to contribute to the areas in which they operate can cause significant damage, both to developed and developing countries, according to ActionAid. Chris Jordan, ActionAid’s tax justice expert, said:
“Tax havens have a damaging impact on the UK exchequer, the stability of the international financial system, and vitally on the ability of developing countries to raise tax revenues which would lift them out of poverty and make them less dependent on aid.”
“When multinationals use tax havens to avoid paying their fair share, ordinary people in both poor and rich countries are left to pick up the bill. Spending on doctors, nurses and other essential services gets cut for those who need it most."
Although it is required by law for UK companies to provide a list of their subsidiary companies along with their country of registration, in the past many of the FTSE 100 companies have renegaded.
This list has been reported for the first time due to a formal complaint filed by ActionAid to Companies House (the authority to which the companies should report to) and following an investigation by business secretary Vince Cable.
Multinational companies may have legitimate reasons for having their subsidiaries abroad, however, FTSE 100 companies appear to make much greater use of tax havens that their American counterparts.
Precious metals miner Fresnillo and financial services provider Hargreaves Lansdown were the only two FTSE 100 companies that did not use tax-havens in this way, ActionAid said.
HSBC, Barclays and RBS challenged the report, telling The Guardian that the global nature of their businesses meant that operating in tax-friendly locations was no proof of tax avoidance in itself.
They said that there were many other reasons for operating in those territories for example, it may be quicker to perform transactions in those regions. RBS told The Guardian:
"We are a signatory to the UK tax code of practice and adhere to the spirit as well as the letter of the law."