A look at Apple UK

We all pay at least 20% income tax on earnings above the annual threshold. Most corporations pay 20% corporation tax on annual profits. But it’s a different story for Apple the world’s richest company.

Apple’s tax arrangements are once again under scrutiny, with the European Commission investigating whether the company has received illegal state aid in Ireland. Rumours of a deal to keep tax rates low between the technology giant and the Irish government have probably saved the company £billions in tax.They own a number of companies registered in Cork Ireland, where they enjoy a tax rate of less than 2%. In point of fact, before 1991, the company paid no tax in Ireland at all.

Apple’s effective UK tax rate is 1%

In the UK last year, Apple paid just £11.4 million in corporation tax after declaring £100 million in revenue and just £59 million in profit. However, some expert estimates of UK sales are as high as £10.5 billion, a tenth of Apple’s global market. Based on revenue, that’s a tax rate of just over 1%. By comparison, the UK corporation tax rate has been lowered from 21% to 20% since the beginning of the current financial year.

A caveat: Normally tax is a percentage of profit, not revenue. However, because so much of Apple’s expenditure is paid to itself, estimates are based on their stated revenue instead. Tax filings over the last ten years show that untaxed revenue from other overseas Apple companies is redirected to Ireland, in return for intellectual property rights and other intangibles.

This is the same sort of arrangement that Starbucks has come under fire for and these methods are complex, but not illegal and is exactly why we urgently need reform not only in the UK but from governments worldwide of tax policies. EU law rules out special deals from governments and if the European Commission finds evidence that Apple’s tax structure in Ireland constitutes state aid, it could reclaim billions against the illegal support.

Last year Apple’s chief financial officer, Luca Maestri, told the Financial Times that the company had not broken any laws. “There’s never been any special deal, there’s never been anything that would be construed as state aid.” While Maestri is technically correct and Apple have not broken any laws, but that is exactly the problem and why people like tax campaigner Richard Murphy of Tax Research UK and the Tax Justice Network have been campaigning for years to try and get successive UK & US governments to reform our tax laws.

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Lord Blencathra & the Cayman Islands

Investigative journalists from the Independent discovered Senior Conservative peer Lord Blencathra denied that he ever lobbied MPs and peers on behalf of a Caribbean tax haven, but in 2014 a £12,000-a-month contract that stated he would do so.

The Lords Commissioner for Standards previously investigated Lord Blencathra for his work on behalf of the Cayman Islands government and he insisted in written evidence that none of his work involved lobbying Parliament. The peer told the commissioner, Paul Kernaghan, that he would not have agreed to lobbying, yet a copy of a contract signed by the former Conservative Party Chief Whip was passed to the Bureau of Investigative Journalism and reveals that the services stipulated included “making representations to … members of Parliament” in the Commons and Lords.

When approached about the contract, Lord Blencathra insisted that the lobbying clause was one of several which were never acted upon, that he had not carried out any lobbying on behalf of the Cayman Islands government and that what he told the commissioner was correct. “My compliance with the law or Lords Rules takes precedence over anything which was in my contract,” he said. “I made clear that I would not be lobbying Parliament or MPs. Indeed, even that initial contract made no mention of lobbying. That was firmly understood between us.”

Lord Blencathra also said he had the contract amended in 2012 “to remove all reference to lobbying UK MPs and Parliament”. But the Labour MP Paul Flynn, who raised the original allegations with the Lords standards authorities, said he did not see how Lord Blencathra could “reconcile his defence against the complaint with this contract”.

“I will be contacting the Lords authorities and asking them to look again at this. It is intolerable that he is acting as both a legislator and lobbying on behalf of a country that makes income from the tax avoidance industry.”

It is illegal for MP’s and peers to use their positions to lobby the Government and fellow parliamentarians on behalf of paying clients. However, despite a string of recent lobbying controversies including Malcolm Rifkind & Jack Straw, the Government has been widely criticised for failing to tackle wider problems in the industry. Critics have warned that the lobbying Bill of 2014 will make very little difference in increasing transparency.

In April 2012 the Independent reported that Lord Blencathra’s work for the Cayman Islands government included lobbying and that he had written to the Chancellor, George Osborne, to complain about air passenger taxes on flights to the Caymans as well as approaching MPs who had criticised the islands.

Lord Blencathra told the commissioner he did not lobby Parliament and would not do so. “None of my work involves lobbying Parliament or seeking to influence either House. I made that clear when I took on the role,” he said. The commissioner subsequently concluded in November 2012 that there was “no evidence that Lord Blencathra exercised parliamentary influence on behalf of the Cayman Islands Government Office in the UK”. He  added: “Equally, no evidence has been presented that he provided parliamentary advice.” But a copy of the contract between Lord Blencathra’s company, Two Lions Consultancy Ltd, and the Finance Ministry of the Cayman Islands government, signed in November 2011, shows that lobbying Parliament was part of the job description.

The contract says the company’s responsibilities include: “Promoting the Cayman Islands’ interests in the UK and Europe by liaising with and making representations to UK ministers, the FCO [Foreign and Commonwealth Office], members of Parliament and members of the House of Lords.” In one message to Dax Basdeo, chief officer in the Cayman Ministry of Finance, Lord Blencathra said: “The only way I can guarantee access to all the key people in the FCO is to be designated ‘official’ Cayman Islands government ‘Political Director’. No matter how good I may be and even with the title ‘Lord’, I need that endorsement.”

In a leaked letter to Cayman Islands government obtained by Tax Justice Network the Tory peer and campaigner for the Cayman Islands Lord Blencathra said “The UK government know from experience it could not chair a G8 summit, nor negotiate in the EU by simply saying no to what other member states are pushing. It has to present either a genuine alternative or a false initiative, which will divert other member states from pursuing their agenda. This is an attempt to distract the EU and G8 from the Financial Transactions Tax.” The letter was in reference to David Cameron’s promise in the House of Commons to crackdown on the use of British tax havens.

A closer look at Vodafone

In April 2013 Vodafone avoided paying any tax on its massive £84bn windfall from selling its stake in the American mobile phone giant Verizon. Public spending watchdogs said the UK-based phone company has a moral duty to hand over some of its gains to taxpayers, but alas because the company are registered for tax purposes in Luxembourg a known tax haven, no money was ever paid over to HM Treasury.

While UK taxpayers miss out, banks working for Verizon earned up to £80m in fees and Vodafone’s advisers reaped a £76m dividend, according to New York research group Freeman & Co, which exclude underwriting fees. In one of the biggest deals in corporate history, Vodafone sold its 45 per cent holding in US firm Verizon Wireless to Verizon Communications and £60bn will be returned to Vodafone shareholders, £24bn to those in Britain.

Vodafone said its US stake was owned by a holding company based in the Netherlands, and so will not be liable for tax in Britain and it paid £3.2bn in tax in the United States. But even if the US shareholding were held in the UK, the firm would not be liable to tax on its gains under rules on shares sell-offs introduced by the then Chancellor Gordon Brown in 2002. The “substantial shareholdings exemption”, means firms to do not have to pay tax on profits from selling a 10 per cent stake or more in another company held for more than a year.

Lord Oakeshott of Seagrove Bay, the Liberal Democrats’ former Treasury spokesman, said: “Vodafone is right up there with Google and Amazon in the world tax dodgers’ league. What possible commercial justification is there for pretending that Newbury-based Vodafone made their investment in Verizon through Holland? “They led HMRC a merry dance in the unlamented reign of Dave Hartnett the new HMRC management and the Government must make every effort now to collect some tax at least on this profit.” But alas they did not.

The PAC, which has attacked tax avoidance by companies such as Google, Amazon and Starbucks, also criticised an alleged “sweetheart deal” between Vodafone and HMRC which allowed Vodafone to forgo a reported £6.75bn of tax in 2011 after its own takeover of Germany’s Mannesmann company in 2000. Vodafone paid £1.25bn to settle the long-running legal dispute with HMRC, but denied reports that the tax bill had been £8billion

Justification for the 2002 change came from HM Treasury who believe the change boosts Britain’s competitiveness and encourages multinationals to be based in the UK. They claim it is more likely that decisions on sell-offs are taken for the right reasons rather than the wrong ones, such as limiting a tax bill.

Vodafone sources argued that the tens of billions could be paid to UK investors, a significant injection of cash into the economy, similar to the Bank of England’s quantitative easing program, which could aid the fragile recovery. Investors would also have to pay tax on it. They insisted Vodafone pays the taxes due in every country in which it operates, about £2.3bn around the world in the 2011-12 financial year. “For every £4 we make in profit, we pay £1 in corporate taxes globally,” it said. In fact what they should be doing according to British tax law is paying £1 in every £5 of profit with current corporation tax rates at 20% since April 2015, but in truth they pay much less.

A look at Alliance Boots

Tax dodging costs in the UK are an estimated £69.9Billion per year, that’s more than half of the country’s total annual healthcare spend. Meanwhile, health and social care services are being slashed in the name of austerity and affordability.  By undermining public services including the NHS, tax abuse harms society and risks public health. It is wrong, should not be tolerated and must be stopped. That’s why Medact has launched a campaign with War on Want, Change to Win and UNITE the Union against tax abuse.

Alliance Boots went private in 2007 in a £12 billion leveraged buyout led by executive chairman Stefano Pessina and US private equity firm Kohlberg Kravis Roberts (KKR), relocating the once-British firm to Zug, Switzerland a well known tax haven. In 2012, Walgreens, the largest pharmacy chain in the US, bought a 45% stake in the company, with an option to buy the remaining 55% in 2015.

Alliance Boots has significantly reduced its tax expenses since going private, avoiding an estimated £1.21 billion in tax over six years, enough to pay for 85,000 new nurses for one year, or to cover the prescription charges for the whole of England for almost three years. At the same time, Boots is expanding its service contracts in the NHS.

It is not right about companies like Boots profiting from the NHS whilst contributing to the country’s public deficit through tax avoidance. Although Alliance Boots is not alone in practicing legal but illegitimate tax avoidance, it does provide a good case study of how the NHS is simultaneously being starved of finance whilst being turned into a cash cow for profit-hungry firms.

While the company bosses get richer through dishonest tax practices, this surplus is not trickling down to the workers at the bottom. For example, Alliance Healthcare (Alliance Boots’ wholesale operation), announced in November 2013 that it expects to cut more than 100 jobs across the distribution network as a result of tough market challenges.

The Pharmacists Defence Association Union (PDAU) reports that pharmacists working for Boots have been under increasing pressure to reach management targets, often at the expense of time spent on patient consultations, leading to diminished customer and professional satisfaction. Sadly, where pharmacists have tried to improve their working conditions and professional standards by gaining independent representation, their efforts have been strongly opposed by their employers.

Boots gives further cause for concern in its recent decision to insist on selling e-cigarettes by Fontem Ventures a subsidiary of Imperial Tobacco despite warnings from the Royal Pharmaceutical Society (RPS) about the potential for harm due to the lack of safety, quality or efficacy standards.

With the company set to further widen its influence by seeking opportunities to develop new healthcare services through the Any Qualified Provider (AQP) contract model, any are worried that the actions of Boots will have a negative impact on the ordinary customer. Boots maybe one of the UK’s oldest and most trusted high street brands, but its recent practices threaten its special position in the hearts and mind of the British public.

A look at Barclays bank

Barclays’ bank tax practices were exposed after HMRC shut down two tax avoidance schemes that were netting the bank at least £500m.

The first scheme involved a buying back of the bank’s own debt. Barclays raised money by selling bonds at a certain price. These bonds devalued. The value came down so much the bank was able to buy back their bonds for less than they originally sold them.

The profit from such transactions is meant to be taxed under ‘corporation tax’ rules, but the scandal is that Barclays bought back their debt through an unconnected company.  In doing so, they made it tax-free. This way the bank avoided an estimated £300million in tax according to David Gauke, former exchequer secretary to the Treasury.

The second scheme allowed the bank to claim tax credits on tax-free income streams. Essentially the bank could claim tax back that they never paid. It was the Financial Times outed Barclays as the unnamed bank behind the schemes. Although stating the Bank was not acting illegally, the FT said the tax avoidance went against the voluntary banking code of practice the bank signed along with 200 institutions.

FT asked if Barclays’ attempts to avoid the half billion pounds of tax would hamper the bank’s efforts to present itself as a good corporate citizen. According to the paper: ‘On December 5 Barclays moved to buy back £3.7bn of outstanding debt for up to £2.5bn. The gain of about £1.2bn should normally have been taxable, generating £300m under normal circumstances for HM Treasury.

Barclays was not alone in exploiting this debt buyback loophole, as state owned RBS launched an aggregate £23.6bn of debt buybacks between 2010-12 with Lloyds buying back £6.4bn worth. Attacks were launched at grey areas in the voluntary banking code, designed to constrain banks tax avoiding tendencies. FT said: ‘It was naïve to expect that a code of practice could substitute for either legal strictures or organizational culture, yet the government has still failed to impose tighter regulations on UK banks.

Barclays developed the second scheme for an unnamed client, according to the Guardian. Explaining how Barclays managed to avoid paying so much tax, the Guardian reported the government believed the schemes were contrived arrangements ‘against the spirit of the law’. The Daily Telegraph reported that Barclays’ auditor, PricewaterhouseCoopers, raised its concerns with the bank over the schemes and that because of the auditors concerns, the bank set aside funds in case their tax avoidance was rejected.

HMRC decided that Barclays had deliberately avoided £500million and were forced to pay in full. But depute the scandal exposed at Barclays and the financial crisis that was in no small way caused in part at least by similar global banking activities, plus the £375billion of free money given to the banking industry between 2009-12 through quantative easing, the government have repeatedly failed to impose tighter regulation on UK banks. Instead they have been left to get on with “business as normal.”