Rise in businesses owned by companies in low-tax regimes

Arising number of UK businesses are owned by foreign companies based in tax havens.

New figures from the Office for National Statistics have revealed that of the countries where companies are most likely to own a business in the UK, nearly half have particularly relaxed tax laws.

While it is not illegal for UK businesses to be owned by companies based in these places, it does result in a loss of tax revenue to the UK.

The countries included on the list are the Netherlands, Luxembourg, the Republic of Ireland, Jersey, Guernsey, Switzerland, the British Virgin Islands, the Isle of Man and Hong Kong.

These countries had a score of 70 or more on the Tax Justice Network’s Corporate Tax Haven Index, which scores countries on how aggressively they seek to attract profit shifting from other countries.

A score of zero would imply no attempt to attract profit shifting, while a score of 100 would be the most aggressive corporate tax haven possible.

The UK has seen a big increase in the number of businesses owned by companies registered in these countries over the past three years. For many of them, this has been much steeper than the average rise for all foreign-owned businesses.

In particular, the number owned by companies registered in Hong Kong has more than doubled from 270 to 650 between March 2016 and March 2019 - an increase of 141%.

The number owned by companies registered in Jersey has risen by 83%, from 905 to 1,655, while Guernsey has seen an increase of 75%, and Luxembourg 71%.

In comparison, the number of UK businesses owned by all offshore companies has risen by just 40% over the same period from 26,970 to 37,840.

Alex Cobham, chief executive at the Tax Justice Network, said: “As the UN World Investment Report has shown, when companies are owned through jurisdictions that operate as corporate tax havens, they pay artificially low (or no) corporate income taxes in the places where they do their business and earn their profits.

“The UK is estimated to lose £25bn a year in corporate tax revenue in this way, due to the subsidiaries of multinational companies declaring taxable profits at a much lower rate than purely domestic UK companies.

“Parliament passed legislation in 2016 for a simple transparency measure that is estimated to raise revenues by £2.5bn a year – requiring multinationals to report on their economic activity and tax paid, on a country by country basis, so any anomalies are quickly revealed.

“But for reasons known only to themselves, the government refuses to use this power – and this week’s budget was another missed opportunity.”