Revealed: How Multinational Companies Avoid The Taxman
· Elaborate structures to move profits offshore
· International investigation into banana firms
Global banana companies supplying the UK are using tax havens to avoid paying tax on their profits here and in developing countries, the Guardian has found.
The investigation reveals that large corporations are creating elaborate structures to move profits through subsidiaries to offshore centres such as the Cayman Islands, Bermuda and the British Virgin Islands, to avoid handing money over to tax collectors in the countries where their goods are produced, and in those where they are consumed. Governments at both ends of the chain are increasingly being deprived of the ability to raise tax for development or services.
Dole, Chiquita, and Fresh Del Monte, the three companies that supply several UK supermarkets and between them control more than two thirds of the worldwide banana trade, generated over $50bn (£24bn) of sales and $1.4bn of global profits in the last five years. Yet they paid just $200m, or just over 14% of profits, in taxes between them over that period, our analysis of their financial accounts reveals.
In some years the banana companies have paid an effective tax rate as low as 8%, even though the standard rate in the US where they have their headquarters and file their full accounts is 35%.
The banana companies are not alone. Nearly a third of the UK’s 700 largest businesses paid no corporation tax in the year 2005-06. A further third paid less than £10m each, according to figures from the National Audit Office.
The use of offshore havens by rich individuals to avoid paying tax was high on the political agenda this autumn, with Gordon Brown matching the Conservatives’ pledge to tax “non doms”. But increasingly, the far bigger challenge for government is how to keep up with the strategies being developed by large corporations to cut their tax bills.
About 60% of world trade now consists of internal transfers within transnational companies, according to the OECD. By weighting their costs towards countries such as the UK or the US that have higher rates of tax, corporations can make little taxable profit in those countries. Instead their profits are weighted towards subsidiaries they have set up in jurisdictions that charge little or no tax.
Del Monte Fresh Produce UK, Chiquita UK and Dole’s UK business, JP Fresh, report combined sales in the UK of over £400m in their most recently filed annual accounts. Yet between them they paid only £128,000 in UK tax.
Fresh Del Monte, currently the supplier of the vast majority of Asda’s bananas and some of Morrisons’, is registered in the Cayman Islands and has more than 30 Cayman subsidiaries. The Caymans have a zero rate of corporation tax. It also has subsidiaries in other tax havens including Gibraltar, Bermuda, the Dutch Antilles and the British Virgin Islands. Over the last five years its actual tax paid has been as much as $69m a year less than tax calculated at the standard US corporation rate.
Dole, which supplies bananas to Tesco in the UK, paid actual tax that was $20m a year less than tax at the standard US rate. Its accounts only list its largest subsidiaries, but these include companies in Bermuda, Liberia and Puerto Rico.
Chiquita, which also supplies Tesco, lists 11 subsidiaries in Bermuda at the end of 2006. Our analysis of its accounts over five years shows that its actual tax paid is as much as $44m less a year than US standard rates.
In a double blow to the developing countries where the bananas are produced, the fall in tax as a percentage of profit paid by the large corporations has coincided with ruthless driving down of costs. Wages have been reduced on plantations even as working hours have been increased.
Fair trade campaign group Banana Link says Fresh Del Monte sacked all 4,300 of its workers on its Monte Libano plantations in Costa Rica in 1999 and re-employed people on reduced wages and benefits, a model it later rolled out across all its plantations. Chiquita’s plantation labour costs meanwhile, which were 5% of its total costs in 2004, had been cut to just 2% in 2006.
Richard Murphy, a tax expert who advised the NAO on its report on the performance of the UK Revenue and Customs, said that large companies are effectively now able to set their own tax rates. “Corporation tax is falling worldwide as a percentage of profits. Corporations seem to be deciding what they should pay, not as a percentage like the rest of us, but as a sum above which they don’t want to go.”
John Christensen, a former economic adviser to the Jersey government and director of the campaign group Tax Justice Network, said the Guardian investigation confirmed that the flight of capital was continuing, having reached unprecedented levels in the 1990s. “The trend in the last 30 years has been to shift the burden of tax away from companies on to the consumer and labour. Capital is increasingly going untaxed.” Dole declined to comment on the Guardian’s detailed allegations, saying that they involved confidential and proprietary information. Chiquita said it complied with all tax laws in the jurisdictions where it does business. Chiquita added that “a significant portion of our earnings occur outside the US where they are subject to taxation at the local tax rate”. Both companies say they are working with the Latin American unions to address workers’ rights.
Fresh Del Monte said it too operated in many countries and complied with all local tax law and international tax treaties. It added that it also complied with all local labour laws, was a strong proponent of freedom of association, and that the average wage of its agricultural employees in the countries where it operates exceeds the mandated minimum agricultural wage.
Guardian Unlimited © Guardian News and Media Limited 2007
The wonders of glorious capitalism.
As much as I dislike this practice, I can understand why these corporations set up in countries like Cayman Islands, Bermuda and the British Virgin Islands.
The only way to stop this is to put pressure on those countries to tax corporations at a fair rate, or to start a worldwide boycott of those products until they pay their fair share.
When Nixon was president corporations paid around 30% of the US income tax bill. Today they pay around 6% and the percentage continues to spiral downward. It is no wonder that the US is rapidly becoming a third world nation.
Why isn’t anybody asking any of the Democratic Party candidates what their goal for US corporate taxation will be by the end of their first term ??? Unless the next president gets the corporate tax burden back up to the Nixon-era figures within four years the US will not pull out of its rapid descent to the third world.
Don’t bother asking any of the Republican candidates what their goal is. We already know it is 0% by the end of their first term.
The Republicans (led especially by Giuliani in this regard)are running around America telling our voters that the stated corporate tax rate in the USA must be reduced because some other nations have done so, and we must match them to remain “competitive.” They also continue to claim that lowering the stated rate causes more tax revenue to come into the treasury, as if by magic. Though this phenomenon has been shown to have coincidentally worked (to a degree) in SELECT periods of change from recession to expansion, voters are told by Republicans that it works in all seasons and to infinity–as though we could get corporate rates down to 5 or 10% and thereby solve America’s deficits altogether. It’s the theory of the Laffer curve carried to absurdity by such as Grover Norquist in his famous buddy-up with TV and mega-church preachers. This is the kind of outright lying, especially to faithful church people in a “low-tax-no-abortion-stew” for which I despise Republican rhetoric and embrace instead their only possible national-class opponents, the Democrats.
The Bush Administration happily cuts the IRS budget, then farms out INDIVIDUAL tax collection work to private collection agencies working on commissions, so as to hound little people to near insanity. Yet, what is needed is probably a quadrupling of the IRS to unravel the never-ending schemes of corporate entities hiding in offshore corners and doing business in or with the USA, and for that matter the schemes of large private and public companies wholly based in America. Republicans in control of government WILL NEVER address this issue. Democrats are willing, by nature of their consituencies, to do it far more effectively, from legislation to auditing, and the bigger the majority the Democrats own in government, the more effective they are. The Reagan years were as ruinous to getting money out of corporations as his firing of Air Traffic Controllers started a ruinous trend for unionism. We need a strong Democratic era to start undoing the damage, and not one like Bill Clinton’s with a Republican Congress. We need Dems from one end of Pennsylvania Avenue to the other, packed solid.
I was controller in a small manufacturing company (average 500 employees) from 1973 to 1994. I have some experience knowing that the tricky part is determining what taxable income is, not applying the tax rate to the number. I know many companies take “aggressive” positions all the time on grey areas. We individuals deserve a government that does not back down or back away from these guys. Don’t kid yourself and think Dems and Repubs are all the same on tax enforcement. They’re not. And that is exactly why big money works so hard to keep a Republican in The White House. To schnitzle you and all other voters on all things tax related.
This is written as if it were a new discovery. This give away has been going on for more than 15 years. It only has gotten massively more flagrant under Bush2.
If you hark back to the 2005 State of the Union, Dubya even announced how much money was being lost in unpayed taxes by corporations that hide their incomes offshore. It was somewhere in the 30 to 40 billion a year range. He acted as if he was going to do something about it, but then again, he was only acting!
Tax evasion is widespread in many industry. For example, check out the campaign targeting the Firestone Tire and Rubber Company for its unfair tax policies on its rubber plantation in Liberia (in addition to its use of child labor and abuse of the environment). Check out http://www.stopfirestone.org.
Check out the Tax Justice Network here: http://www.taxjustice.net as well as the Youth Tax Justice Network: http://ytjn.blogspot.com/
If the corporation is formed/registered in a foreign country…..then it’s not an American company, and it’s products should be subject to tariffs….that’s the way the world used to work before “free trade”…Our constitution assumed tariffs would be the primary method of income for the federal government…NOT income taxes. Fair trade is much more likely in such a scenario…
What’s good for the goose should be good for the gander.
Americans should be allowed to offshore themselves, claim address in the Caymans, etc. to dodge personal income taxes and other obligations if they wish. Or to buy a home anywhere in the US based on the cost of living in one of the world’s cheapest third world nations.
If corporations can offload their labor expenses to the third world, why can’t losing first worlders offload their greatest cost — their real estate?
How is it that fictitious individuals (corporations) ended up with more rights and opportunities?
“A longstanding definition of human stupidity is to do the same thing over and over again and expect a different outcome.”
The tail (corporations) has been wagging the dog (government) for decades and the average person continues to get deeper into debt while the wealthy avoid paying taxes and hide their money in tax havens.
You don’t have to be an economic guru to figure out that an economy that borrows more than it earns is in decline, not to mention that Fannie-Mae and Freddie-Mac have guaranteed $3.8 (+/-)TRILLION in mortgage loans. The United States is the “Empire of Debt” thanks to government officials who continually bailout the central banks and other mega-corporations at the expense of average-Joe tax payers. How gratuitous of them to extend welfare to the super-wealthy!
Edward1793,
Re The only way to stop this is to put pressure on those countries to tax corporations at a fair rate…
Hmmm… well, since such companies want to incorporate in a corporate-friendly country while all segments of their business except their post office box and bank account are in other countries, I vote for an import duty of, say, the difference between our corporate tax rate and the rate in the Cayman Islands.
Costa Rica might consider a similar tariff.
http://www.corpwatch.org/index.php
http://www.corporatecrimereporter.com/
http://www.corp-research.org/howto.htm
You might want to check them out.
Re The United States is the “Empire of Debt”… How gratuitous of them to extend welfare to the super-wealthy!
Well, that’s kinda the whole idea, isn’t it? Unrestrained capitalism leads to fascism precisely because the government becomes infiltrated by, and in time becomes the handmaiden of, big business.
“Tax cuts” and “free trade” are really little more than schemes to defraud taxpayers. Take tax cuts, for instance. Tax cuts without commensurate spending cuts force the government to either borrow or print money. At the moment, borrowing is the de rigeur strategy of the day. Borrowing has two major effects. First, the public can be lulled back to sleep. The government can do things without having to incur the political risks of raising taxes. Not only that but the things that the governemnt does can be vetted by the lenders, who are in the enviable position of having the government in a financially dependent position. Secondly — and here’s where the scam comes in — the government must pay interest to the lenders. This interest, of course, will eventually have to be covered by taxpayers. Last year, even using the conservative figures published by the government itself, it paid over $240 billion to finance its debt — which just happens to be almost the exact amount of the government’s shortfall in revenue. Imagine that!
In round numbers, that means that, on the average, every adult worker in the United States forked over $1000 to the wealthy investor class to finance the federal deficit. This isn’t money that goes into needed government services, by the way. This is money paid in interest to wealthy investors.
This is the true cost of the GOP tax cuts — unending servitude to the investor class.
And what of a competing image of what a modern, technologically developed, economy that is in keeping with our national values of democracy and personal freedom can look like and real practical plans to attain it?
My suggestion that we make inroads in the articulation of a Democratic Capitalism is based on many strategic needs. One is corrective to the neo-fascist/neocons’ imagines of manipulation propagated through their corporate media. They may lie with every breath that they talk about family values and national security but they have been giving many a vision of a future while the left is silent.
We need to talk and our candidates to all offices need to talk about tax structures about business structures about remaking a middle-class linking this back to Family Values and True National Security. Details of how the breaks that the corporate structures are eroding family values, destroying family farms and sullying our national image overseas will come out in the process of offering an alternative.
Here in Puerto Rico,our whole economy has been fashioned,and re-fashioned for the last 105 years, to act as a TAX HAVEN for U.S. corporations.
It all started with the Sugar Barons-and-Bankers Trust like Morgan. Our economy was deformed by these “goals” from the start, after the U.S. takeover in 1898.
Puerto-Rican agriculture was turned to sugar monoculture, as these U.S. sugar corporations took over 70% of the best agricultural lands on the island,creating at the same time,a pauperized and cheap work-force of dispossed farmers and peasants,for the U.S. sugar mills.
After WWII our economy was “modernized” by a shift from being a tax haven for sugar,to acting as a tax haven for U.S.Pharmaceuticals
looking for an easy place to pollute without any restrictions.
Our work-force was re-trained to act as cheap labor force in manufacturing goods, such as most of the Tylenol consumed in the continental U.S.
Today we continue to act as a tax haven for these and other,more recent ventures such as biotechnology.
Officially, we are a dependent colonial posession living on WELFARE,a burden to the American tax-payer.
The truth is that for over 100 years we have been a cheap labor force, and a kidnapped economy, producing billions of un-taxed dollars for American Corporations.
The U.S. gorvenment subsidizes the welfare programs in Puerto Rico barely enough to hide the ugly fact of a second-rate colonial territory where unofficial unemployment figures outside of the capital are above 50%.
Furthermore,we are “eager” consumers of U.S. goods(since 1898 we can only trade with the U.S.Another colonial legacy from the Spanish-American War treaties).We have been allowed no other choice.And since 1917 we have been enlisted to fight in every war where the USA
has been involved.So you see,we are no “free riders”.
This is to show that the Caribbean islands have been used as an early laboratory for Monopoly-Capitalism.The totalitarian economic model that dominates the world today under the banner of “globalization” was “tested” first in the Caribbean.
One quick review at our present condition, after close to 200 years under this “model of development”(ever growing debt,ecological disaster,deformed economies,chronic dependency),should leave NO DOUBT about its legacy for any region or nation under its rule.
“Revealed: How Multinational Companies Avoid The Taxman”
Thus working people pay more than their share in taxes.
Chuck Schumer’s tortured logic:
“On the day that Senator Charles
Schumer used his vote on the Senate Judiciary Committee to all but assure that
George W. Bush’s latest pick, Michael B. Mukasey for attorney general, would be
confirmed, The New York Times obliged him by publishing - in a featured Op-Ed -
his reasons for doing so. The Times did not see fit to publicize any other
senator’s thoughts on the matter. That is fitting, because the only voice that
mattered in the end was Chuck Schumer’s.” -
Marc Ash
they shoudn’t have to pay taxes. that’s what the little guy is for.
Since the nation seems to lack common sense, we need a consititutional amendment stating that corporations are not people and don’t have ANY rights. They are legal contructs which limit or remove liability…that is their purpose. How often have we said rights come with responsiblities? Corporations must be reigned in..this is the root of the many problems we discuss on this board. If you want to weed effectively…you pull the weed up by the ROOTS!
Of course my common sense also tells me that much in the constitution that is plain as day to me has been overruled and negated by the Supreme Court, the President(s) and Congress…The rule of law really has ceased (if it ever really existed?) The golden rule is all there is, was, and probably ever will be…Those with the gold make the rules…Fool me once shame on you…fool me twice shame on me…fool me for 40+ years and my heart breaks, fool a country for 200+ years and all hell breaks loose, fool the world for 200+ years …game over. The truth does have a way of outing itself…but all it does is illuminate the deception…it doesn’t fix anything. What a crying shame…
It is time for all us small guys to remember that it is the small guys that pay the taxes and the big guys that benefit fronm it (think about those loss making concerns that receive state bail outs while their directors receive 6 and 7 digit salaries.)
What we do not realise is that ALL compulsory taxation is immoral and illegitimate. Even the US constitution forbade compulsory taxation. Citizens are supposed to voluntarily supported their government and withold their supoport when they feel that it is not serving them properly. EG, you dont want a war, stop paying until they stop the war.
ALL taxes are illegitimate. The big guys have found a way around the trouble. WHen will we small guys realise this and do something positive about it instead of complaining about the others who do not pay taxes, and when will we learn that the draconian measures that we are demanding for the collection of taxes will only enslave us even more.
NO COMPULSORY TAXES FOR ALL. Now that is what free people should be saying.
“There can be no effective control of corporations while their political activity remains.” Teddy Roosevelt
I eat lots of bananas, so I support them skipping out on paying taxes because I get a lower price. Corporations don’t pay taxes, it is built into the price of products that you and I purchase. That is why I would favor the ridiculously high cigarette tax because I don’t smoke!
Catch my drift here? We pay the corporate taxes in the price of products we buy.
I catch your drift…but the fallacy is that corporations pass savings on to consumers…and this isn’t so…they just take more profits…they charge what the market will bear…pretty much regardless of their costs…especially when there is little competition…and even then it’s about what consumers are willing to pay…not their costs (as long as there is some profit of course).