The Tax Free Tour - VPRO Documentary

The Tax Free Tour Transcription:

  The Tax Free Tour - VPRO documentary - 2013

"Of course, you always pay your taxes when they're due. But imagine a world in which there are no taxes, where laws and regulations can be adjusted according to your own wishes. Wouldn't we all love to live in such a world?

To make this tax-free universe as visible for you as possible, we'll take you on a world tour from Norfolk to Nairobi, from Long Island to London, and from Amsterdam to Dubai. Here's what you can expect. I love the phrase that we're looking for: neutral taxation. It actually means no tax, by the way. And actually, we now know where the money is. It's parked in these offshore havens.

You know, we were greedy, we're greedy people. We are in a battle with each other and our governments to survive. This is Backlight. Welcome on board the tax-free tour.

They sell 20 million iPads a year for about $500 retail. That's $10 billion in China. They've been employing about 1.2 million Chinese workers, and they pay about $40 to $50 a piece for those iPads. So, the iPads that they're selling for about ten times what they're buying from China. So, China realizes about $800 million dollars out of the $10 billion. Where does the rest of the $10 billion dollars go? Well, they park about $2.2 billion dollars of royalties offshore on low-tax havens. So, the total gross margin on all this is about six billion, and the total effective tax, we've looked at Apple in the last year, they've paid about 1.9% tax corporate tax rate in the United States. Remember, the United States effective tax rate is 35%. Dennis Healey, the former UK chancellor, said the difference between evasion and avoidance is the width of a prison wall. So, when you're into this kind of higher echelon tax gaming, the rules are very flexible. How is it that Apple pays only 1.9% tax on its profits generated outside the U.S.? To understand this, allow me to take you on a tour through a world that, for most of us, is hidden from view. A world in which the capital flows of multinationals are structured and sometimes make a quick stopover in the Cayman Islands, Cyprus, or Amsterdam. A so-called offshore world that exists behind physical and virtual walls, and where little or no taxes are paid.

My day job as a corporate investigator is looking at offshore structures, tax haven structures of companies that our clients are going to invest in. So, it's looking at their relationships, it's looking how they acquired their wealth to begin with, and it's looking at their corporate structures that they employ. And often, these will be long, complicated, completely mysterious chains involving different tax havens. Something called, say, for example, the Cyprus sandwich, where you might have a Ukrainian company, so Ukrainian assets which are then owned by a Cyprus company that's owned by a Luxembourg company that's then owned by a Cyprus company that then goes off in five different ways to Belize, British Virgin Islands, the Cayman Islands, and Panama. And this is the stuff we're looking at, and we have to, well, I think in that case, it's pretty clear that things aren't very clear and aren't transparent. Allow us to introduce business intelligence investigator William Brittan Catlin on behalf of major financial institutions. He delves into the shadow side of global capital flows. So, this is the, um, this is what we're looking at. Here's our Cyprus sandwich. It goes up to Belize. It's very confusing to.

In Kenya, we explore the impact of the financial shadow world on the African continent. Johannes Chaminia and his colleagues are investigating how multinational companies operating in Africa structure their accounts to minimize tax payments. The presence of only one employee in the Netherlands raises a red flag for the basic registration of a company. To avoid detection, companies exploit loopholes to pay as little tax as possible.

Johannes Chaminia shows us that tax havens don't always resemble palm beaches. He takes us to one of Kenya's 65 special economic zones, Ateriva, where the Arteries Export Processing Zone is located. This zone is like an enclosed bonded area where manufacturing companies are based, producing goods exclusively for export. It serves as a formal method of tax avoidance.

In Kenya, companies initially receive a 10-year tax break. After this period, they are subject to a corporate tax rate of 25%, which is lower than the general corporate tax rates in the market. Additionally, there is no withholding tax, making it a small-scale tax haven initiated by the government. Tax holidays are promoted as an incentive to attract investment and promote development and employment. However, the reality is that most companies close or change ownership after the 10-year tax break, exploiting the system rather than contributing to the country's long-term growth.

Itiyawaris, a researcher at the University of Nairobi, has investigated the effects of these secret tax arrangements for years. He reveals that such zones exist in almost every African country, but they fail to deliver the promised benefits. Companies establish their factories, enjoy the tax breaks for a limited time, and then shut down or relocate. The ownership changes allow for an extension of the tax holiday by another 10 years. Itiyawaris emphasizes that companies invest in a country for its natural resources, not solely because of tax incentives. However, developing country governments still believe they must attract and retain multinational corporations, leading to exploitation of resources without significant long-term benefits.

The consequences of multinational companies evading their fair share of taxes are shouldered by the citizens. Governments, seeking revenue elsewhere, often impose value-added taxes (VAT) on goods and services consumed by the public. VAT affects everyone, including the poor who end up paying a larger percentage of their salaries in taxes. This regressive taxation system exacerbates income inequality and hampers socioeconomic progress. The hidden offshore wealth parked in tax havens could address these issues, but as long as it remains inaccessible, governments struggle to provide essential services.

Tax Competition
Job opportunities in tax havens may be limited due to restricted access to these premises. However, the larger issue lies in the global tax competition, with countries slashing corporate tax rates to attract multinational companies. The UK and Canada, for example, have reduced their tax rates to compete with other nations. This race to the bottom creates an environment where corporations pay minimal taxes, but it does not lead to faster growth or responsible behavior from banks. In fact, it results in money flowing out of countries, making it challenging to compete with jurisdictions offering zero or low tax rates.

Multinationals and Tax Havens
Multinational companies focus on reporting as little profit as possible to reduce their tax liabilities. They achieve this by transferring software patents or intellectual property to Dutch mailbox companies. Subsidiaries abroad pay royalties on these assets, reducing the profits of the parent company. Surprisingly, only a small portion of these royalty flows are subject to taxes. Companies like Apple, Pfizer, and Starbucks engage in secret arrangements with tax authorities to minimize their tax burdens. These strategies, including complex royalty payments, enable them to operate within legal boundaries while avoiding substantial tax payments.

Starbucks and Tax Evasion
In a hearing before an English parliamentary committee, Starbucks faced scrutiny for its low.