Socialist Worker

Corporate inversions are a whopper of a tax wheeze that's totally bananas

After Burger King turns Canadian and the bankers blackmail Scottish voters, Simon Basketter looks at the ‘inversions’ big firms use to avoid paying tax

Issue No. 2422

Burger  King becoming Canadian means it will have had seven structures in less than 20 years.  In 1996 it was owned by Grand Metropolitan. Grand Metropolitan was merged into Guinness and renamed Diageo in 1997. Five years later Diageo sold Burger King to private-equity funds run by TPG, Bain and Goldman Sachs. They floated the firm on the stock market in 2006. In 2010 it was bought by 3G Group. Now it is merging with doughnut company Tim Hortons. Hortons has already been bought by one burger joint, Wendy’s, in 1995, then spun out from it in 2006.

Burger King becoming Canadian means it will have had seven structures in less than 20 years. In 1996 it was owned by Grand Metropolitan. Grand Metropolitan was merged into Guinness and renamed Diageo in 1997. Five years later Diageo sold Burger King to private-equity funds run by TPG, Bain and Goldman Sachs. They floated the firm on the stock market in 2006. In 2010 it was bought by 3G Group. Now it is merging with doughnut company Tim Hortons. Hortons has already been bought by one burger joint, Wendy’s, in 1995, then spun out from it in 2006.


On paper, Ireland became the biggest banana producing country in the world this year, when Chiquita bought up Fyffes bananas.

This is called “inversion” and it’s the latest wheeze for companies to avoid billions in tax.

The idea is that companies shift their tax home to a country with lower rates by acquiring a smaller foreign rival.

So Burger King has become Canadian by buying a donut company.

The same scam was at the root of the so-far failed deal between pharmaceutical giants Pfizer and AstraZeneca earlier in the year.

And there was much talk in the referendum campaign last week of companies moving their headquarters if Scotland voted Yes.

But company headquarters are flexible.

They have little to do with nation and much to do with profit and tax.

One standard way of dodging tax is to register companies in offshore tax havens. This allows the rich to get away with paying minimal tax, if any.

But the most serious tax avoidance technique is transfer pricing.

This is a dubious area where purchases and sales take place within the same company. Items are sold from subsidiaries of the firm in high-tax countries to others in low-tax ones, so cutting the amount of tax paid.

That’s where inversions come in. Profits are declared in the countries with the lowest tax rates and debts are declared elsewhere.

It is why Rupert Murdoch is really rich, and why Apple is American but makes its stuff in China.

Further, inversions mean the parent company “lends” money to the big firm. The big firm then deducts the interest payments it makes to the parent company, reducing its taxable profits.

There is “hopscotching” as money bounces from country to country while avoiding taxes.

There is currently something of a phoney war in US politics with attempts to prevent the practice. US president Barack Obama described the companies as “deserters” that are “renouncing their US citizenship”. It will come to little.

In Europe it is less of an issue because EU governments, including Britain, keep cutting corporation tax to try and attract the companies.

For example, US drug company AbbVie bought Shire for £20 billion.

Shire itself reflects how this works—it is a British company, registered in Jersey but with its headquarters in Ireland.

The slowness of the economic recovery means two things. Bosses are reluctant to invest back into production, but the stolen money that is profit is accumulating.

They put it offshore to avoid tax, but it is to some extent stuck there.

Just three companies now trying to use takeovers of European firms to cut their tax bills hold at least £13 billion “trapped” in offshore cash.

As Howard Silverblatt, an US financial analyst points out “Every dollar saved on taxes is one less dollar you have to earn on sales. It’s real money.”


‘Tax the rich’, say the rich

The Rich nations club the Organisation for Economic Cooperation and Development (OECD) proclaimed last week that tax dodging “can no longer be tolerated”.

It released recommendations agreed by 44 countries accounting for roughly 90 percent of the global output. The OECD hailed this as “a turning point in the history of international co-operation on taxation”.

Avoiding tax is obviously in the interest of any given company.

But allowing each other to avoid tax goes against the bosses’ collective interest, as it weakens the states that they all depend on to guarantee their profits.

The OECD debate reflects this tension.

What the trumpeted clampdown actually means is that companies may have to give tax authorities details of sales and profit and tax payments on a country by-country basis.

In theory this could make it possible to work out the main ways that Apple or Murdoch’s News International avoid tax. That is of course, not the same as actually making them pay it.


Avoiding workers’ rights too

Corporate Tax avoidance has a direct effect on workers’ rights.

As well as jobs being ditched and temporarily offered, it is a way of moving control further into the hands of the bosses.

Tax scams are the origin of outsourcing.

They encourage the creation of a range of companies, which as well as shifting around debts are supposed to compete in order to get contracts—by cutting costs.

The drive towards outsourcing started with the success of the Walmart supermarket chain in the US. 

Walmart grew by undercutting its competitors as it bought its goods from suppliers in the Third World that it wholly or partly-owned.

This anti-worker practice has now become the preferred method attacking workers in the public sector as well.


Osborne backs his dodger pals

No wonder George Osborne and the Tories are against some of the OECD’s proposals.

Many tax havens are British-run overseas territories. These include the Cayman and British Virgin Islands, Bermuda, Guernsey Jersey, and the Isle of Man.

The tiny Channel Island of Sark has ten times more companies than people.


Half a trillion taken out of the US

Thirteen inversion deals worth £107 billion have been announced in the US since the start of 2013. 

There are another nine US firms doing inversions who refuse to reveal how much their deals are worth.

US non-financial companies hold a total of about £575 billion in overseas cash. This doesn’t include the trillions the banks hive offshore, or the actual illegal tax evasion.


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