A report by Action Aid has revealed that 98 of the companies in the FTSE 100 have set up subsidiaries in tax havens in order to reduce their UK tax bills. (Read about the report here.) Some of those subsidiaries may well relate to the commercial activities of those companies in the tax havens concerned – Tesco might have a network of supermarkets in the Cayman Islands, for example – but most of them are simply there to get round the tax rules.
Channel 4 News last night sent a reporter to Jersey to try and find the companies headquartered at 22 Grenville Street, St Helier, but found only a law firm receiving the mail. (Watch the report here.) This is taken as criticism of the companies concerned, but is that right?
Mark Littlewood, of the Institute of Economic Affairs, explained in the news programme afterwards that one of the legitimate tasks of companies is to reduce their costs (watch here), and that using tax havens was within the law.
The real complaint should be addressed not to companies but to governments. They tolerate a system of tax collection based on national sovereignty that permits, and even encourages, countries to steal tax revenue from each other. Nicholas Shaxson, also in the Channel 4 programme, pointed out that tax havens distort markets by diverting economic activity on a basis other than that of competitiveness and productivity, and by offering their advantages to large companies rather than small ones, tilt the market against SMEs.
A persistent theme of this website is that you cannot expect people to behave better than the law requires. The same is true of companies, so if we want them to behave better, we have to improve the law. Nicholas Shaxson spoke of countries trying to “defend themselves” against the deleterious effects of tax havens. A second theme of this website is that defence against common threats is often better conducted in common. Clamping down on tax havens to protect tax revenues is a good example of the need for collective action, if we do not let national sovereignty get in the way.