Alex Dunnagan

Parliament forces Netflix to respond to TaxWatch research

24th September 2020 by Alex Dunnagan

Netflix has agreed to respond to TaxWatch’s investigation into the company’s tax affairs after a request from the Digital, Culture, Media and Sport (DCMS) Committee. Our report revealed that the TV giant had streamed up to $430m of profits into offshore tax havens in 2018 (we have since published a follow up bl og post taking into account 2019 figures). This research into Netflix’s tax affairs has previously been the subject of an adjournment debate in the House of Commons.

The DCMS are currently holding an inquiry into ‘The future of public service broadcasting’, and on Tuesday 15 September held a formal meeting in which senior Netflix executives Benjamin King, Director of Public Policy UK and Ireland, and Anne Mensah, Vice President of Original series, participated.

During the oral evidence session the Labour MP for Cardiff West, Kevin Brennan, put our report to Mr King, in saying:

“the revenues from subscribers in the UK in 2018 for Netflix was £860 million, yet Netflix pays very little tax in the UK because that money is credited to a Dutch company….What is your response to that issue about the way in which Netflix is structured allegedly to avoid paying tax in the UK?”

Mr King responded:

“I would like to start by emphasising that we do pay all the tax that is required of us under UK law and every other jurisdiction that we operate in. Our accounts from 2018, which is our most recently published set, showed that the operating profit we made across our entities at that time was offset under HMRC’s group relief regime rules by the losses that we made on certain of our productions.”

Mr King went on to say that because Netflix’s European Headquarters is in the Netherlands, profits from the UK “are taxed in the Netherlands, which is completely in accordance with international norms”.

Mr Brennan asked if there was any truth to the allegation that Netflix is intending to take advantage of High End TV Tax Relief in the UK while not paying any profit here. Mr King responded that there were “a great many inaccuracies” and “false assertions in the TaxWatch report that we noted at the time of publication”, to which Mr Brennan questioned why Netflix did not respond to TaxWatch’s initial request for comment prior to publication.

Mr King stated that “we were not consulted on the detail of the calculations”.

As TaxWatch has now set out in a letter to Mr King, this is incorrect. TaxWatch contacted Netflix posing a number of questions that arose out of our investigation, while setting out in detail our calculations and research in advance of the publication of our first report in January 2020. We made it clear that we were contacting Netflix to allow for the opportunity to raise any factual issues and to provide a comment in advance of publication.

In a subsequent phone call with a representative of Netflix, TaxWatch’s Executive Director George Turner made it clear that we would be happy to correct any inaccuracies in advance of publication if Netflix provided us with the disputed details.

We were assured we would receive a full response to our request for comment, however, after several days of no further contact, Netflix told us that the company had decided not to respond.

For that reason we were surprised to see the claims made about our research at the committee hearing.

Mr Brennan pointed out that Netflix were given an opportunity to respond, and asked if Mr King wished to make a comment during the committee proceedings. Mr King stated that he did not have TaxWatch’s report in front of him, and repeated the claim that there are “certainly a great many inaccuracies in the report”. When pressed further he agreed that Netflix would provide a written response.

We have since re-sent our report and initial correspondence to King in order to assist with Netflix’s response to the DCMS.

A transcript of the session is available here, with video footage is available here. Reference to TaxWatch’s research begins at 1059hrs.

Photo by cottonbro from Pexels.

TaxWatch calls on City of London Police to investigate fraudulent tax schemes

19th August 2020 by Alex Dunnagan

TaxWatch is calling on the Economic Crime Unit of the City of London Police to open a fraud investigation into the promoters and marketers of disguised remuneration tax avoidance schemes.

Recent press reports have revealed that disguised remuneration tax avoidance schemes continue to be marketed to the public, including the direct targeting of NHS workers during Covid-19 pandemic. These schemes are marketed as “lawful” means of reducing a tax liability despite very clear legal rulings to the contrary.

The fraudulent marketing of schemes leads to contractors handing over substantial fees to dishonest tax advisors on the false belief that what they are doing is lawful.

However, when the schemes inevitably fail, users will be left with crushing financial losses.

Writing to the Economic Crime Unit, Director of TaxWatch George Turner said:

“Now that the legal position on the taxation of disguised remuneration schemes is crystal clear, anyone continuing to design, market, and promote loan schemes can not be doing so in the honest belief that these are anything other than unlawful attempts to evade tax.”

“Promoters continue to perpetrate these schemes because they are able to generate very significant fee income from scheme users, and if HMRC challenge these schemes, the users, and not the promoters, will be held liable for the taxes owed.”

“These schemes are an economic crime which cost the Treasury hundreds of millions a year. Until the promoters of fraudulent tax schemes are prosecuted, they will continue to ruin lives.”

The full text of the letter can be found here.

Photo by Bruno Martins on Unsplash

Rogue Landlords

5th August 2020 by Alex Dunnagan

Up to £1.73 billion a year in tax is being dodged by unscrupulous landlords. The new figures are revealed in a report by TaxWatch, and suggests that levels of non-compliance have exploded since 2010, the last time that HMRC published official figures on the scale of evasion in the buy-to-let sector.

In that year, HMRC estimated the amount of tax lost to residential landlords not declaring their income was £540 million.

The report recommends that the government introduce a national register of rental properties to improve tax compliance in the buy-to-let sector.

General Electric tax fraud allegations revealed

4th August 2020 by Alex Dunnagan

A new report published by TaxWatch today reveals the serious allegations of fraud being levelled against a major US corporation by HMRC.

The full report, titled “Around the world with $5bn: General Electric and the Australian arbitrage” details how General Electric moved $5bn between the US, Luxembourg, the UK and Australia in just four days as part of a complex “hybrid arbitrage” tax avoidance scheme, that allegedly generated a tax benefit for GE in the UK of up to £760m over a period of 10 years. The report is based on a series of court documents that have emerged as part of the dispute between the company and the tax authority.

According to HMRC’s claim, GE were only able to gain the tax benefit after they knowingly withheld information from the tax authority in an attempt to defraud the British taxpayer.

This included deleting key passages from the minutes of a board meeting in order to hide the true extent of the tax avoidance scheme.

GE strongly denies the allegations, and says that the entire scheme was presented to HMRC in discussions with the tax authority at the time.

HMRC’s allegations of fraud were made as part of a recent amendment to ongoing litigation between the tax authority and GE. GE sought to challenge HMRC’s right to amend their case to include allegations of fraud.

A recent High Court Judgment by Mr Justice Zacaroli confirmed that two of HMRC’s allegations of fraudulent misrepresentation had no chance of being proved, in part because of the time that had passed since the acts took place. A third allegation, fraudulent misrepresentation on the basis of knowingly failing to disclose relevant documentation, was allowed to proceed to a full trial. The case is scheduled to be heard in court in 2021.

The full report can be found here.

Cruising for a bailout

17th July 2020 by Alex Dunnagan

The cruise ship industry was an early casualty Covid-19, with all major cruise operators being forced to halt their operations.¹ This has hit the industry hard, with share prices in the largest cruise companies dropping by over 50 per cent compared with this time last year.

The impact of the virus on the industry became the first flashpoint in the debate about which companies should get state support. Following fierce debate in the United States over whether their decades long use of tax havens should disqualify them from receiving support, it appears that the industry can not access Federal support under the CARES Act. However, with little fanfare, the Bank of England has loaned £325m at low interest to the two largest cruise lines. both of which are renowned for their use of tax havens.²

Cruising for a tax deduction

By incorporating in places such as Panama (Carnival Corporation) and Liberia (Royal Caribbean Cruises), and registering ships in countries such as the Bahamas, as well as making use of a number of generous tax exemptions, cruise ship companies are able to avoid tax and are held to lower standards on health, safety, the environment, and labour rights.

A report by The Hustle calculated that the major cruise lines, all with a significant presence in Florida yet incorporated offshore, paid an average tax rate of just 0.8 per cent.³ A recent investigation by Business Insider found staff on cruise ships working long hours for as little as $500 a month.⁴ Carnival Corporation & Plc has recently been fined $20m for dumping sewage and plastic waste into the ocean, while falsifying records of incidents.⁵

America to the rescue?

In the US, President Trump has praised the cruise industry , calling these offshore companies “a great US business” during a press conference.⁶ The President has had a long association with the industry. Micky Arison, chairman of Carnival, is a personal friend of Trump and helped sponsor his reality show “The Apprentice”.⁷

Not everyone agrees with Trump’s analysis of the industry. Peter DeFazio (D-Ore.), chairman of the Transportation Committee, commenting on the industry’s request for a bailout has said “they aren’t American”, and “They don’t pay taxes in the United States of America. If they want to re-flag their ships … and pay U.S. wages and pay U.S. taxes, then maybe.”⁸

Despite the President’s fondness for the industry, it appears that it does not qualify for relief under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). As companies must be certified as “created or organized in the United States or under the laws of the United States” as well as having “significant operations in” and a majority of employees based in America.⁹ Despite all the major players having a presence in Florida, this effectively rules them out. ¹⁰

Carnival Corporation’s annual 10-k filing goes as far as to state that “…substantially all of Carnival Corporation’s income is exempt from U.S. federal income and branch profit taxes”, due to the fact that Section 883 of the Internal Revenue Code exempts “income derived by a corporation organized in a foreign country.”¹¹ ¹² Norwegian said in its most recent annual filing that under “current Bermuda law,” where it’s incorporated, the company is “not subject to tax on income and capital gains.”¹³

British bailouts

In a similar fashion to President Trump, the British Prime Minister has recently referred to the cruise industry as “a great, great British industry”, stating that the UK “will support it in any way that we can.”¹⁴ Though the rhetoric is the same, while the US isn’t bailing out the cruise industry, the UK is.

On 04 June, the Bank of England announced that £25m in Covid Corporate Financing Facility (CCFF) loans had gone to Carnival Plc, a British company that is ‘dual listed’ with the Panama incorporated Carnival Corporation.¹⁵ A dual-listed company is a corporate structure wherein two companies function as a single business. ¹⁶

On 25 June it was revealed that RCL Cruises Ltd, better known as Royal Caribbean Cruises, had received £300m in CCFF loans.¹⁷ Royal Caribbean does have a headquarters in the UK (along with one in Florida), but the ultimate owner is RCL, a company incorporated in Liberia in 1985.

In 2019, Carnival PLC declared profits of $1.2bn and faced a tax liability of just $40m. In 2018, the latest year that accounts are available, RCL Cruises Limited declared $226m in profit and received a tax credit of $59m.

We have written about how countries around the world have sought to exclude companies registered in tax havens from receiving government support, in our report, Paying in Equally. The cruise ship industry provides one powerful example of how the UK has taken a relatively easy-going approach to which companies qualify for government support. But with calls growing to place restrictions government bailouts, will the UK government’s support for the cruise ship industry be sustainable?

Photo by Morning Brew on Unsplash

1https://www.theguardian.com/world/2020/mar/27/stranded-at-sea-cruise-ships-around-the-world-are-adrift-as-ports-turn-them-away

2https://www.theguardian.com/world/2020/mar/27/stranded-at-sea-cruise-ships-around-the-world-are-adrift-as-ports-turn-them-away

3https://thehustle.co/the-economics-of-cruise-ships/

4https://www.businessinsider.com/cruise-ship-workers-reveal-how-much-money-they-make-2019-5?r=US&IR=T

5https://www.ft.com/content/0eac4946-8644-11e9-97ea-05ac2431f453

6https://www.washingtonpost.com/travel/2020/03/13/trump-offers-support-cruise-lines-during-coronavirus-outbreak-while-asking-them-stop-sailing/

7https://www.washingtonpost.com/politics/coronavirus-pandemic-tests-clout-of-cruise-industry-and-its-long-standing-ties-to-trump/2020/03/12/3f79a1ba-63aa-11ea-912d-d98032ec8e25_story.html

8https://www.politico.com/news/2020/03/11/coronavirus-cruises-126426

9https://www.whitecase.com/publications/alert/us-cares-act-relief-available-us-subsidiaries-european-companies

10https://www.politico.com/news/2020/03/11/coronavirus-cruises-126426

11https://www.carnivalcorp.com/sec-filings/sec-filing/10-k/0000815097-20-000003

12https://www.law.cornell.edu/uscode/text/26/883

13http://www.nclhltdinvestor.com/static-files/ebce2e02-cf0d-42ce-b3f6-4c91efcd3c9a

14https://www.telegraph.co.uk/travel/cruises/news/boris-johnson-british-government-support-cruise-industry/

15https://www.bankofengland.co.uk/markets/bank-of-england-market-operations-guide/results-and-usage-data

16https://www.travelweekly.com/Cruise-Travel/Saudi-Arabia-buys-a-piece-of-Carnival-Corp

17https://www.bankofengland.co.uk/markets/bank-of-england-market-operations-guide/results-and-usage-data

Tax havens, tax avoidance, and government support for businesses during the coronavirus pandemic

9th May 2020 by Alex Dunnagan

Following controversy over the prospect of taxpayer funds being made available to support companies with a history of tax avoidance, there have been calls in the UK and around the world to exclude companies based in tax havens from accessing government support.

Whilst such eye-catching policies are popular, they are likely to be ineffective, according to TaxWatch’s latest report Paying in Equally?

Instead, our report suggests a package of reforms aimed at meeting the government’s goal of ensuring that all who benefit from state support pay in on an equal basis. This includes:

Making tax exiles liable for dividend income tax on profits derived from UK based companies.
Making government support for business repayable if a company is found to be engaging in tax avoidance.
Creating a list of companies ineligible for state support due to involvement in tax avoidance (regardless of whether that avoidance uses a listed tax haven).
Invest resources into tax enforcement to ensure better compliance with anti-tax avoidance legislation.
Mandate the publication of tax data by large, multinational companies.
Making data available to the public on which companies are accessing support schemes and on what terms.

To read the briefing in full, please click here. A PDF version is also available here.

Since publishing, this report has been covered by The Times, Law360, and our Director has published an op-ed on the issue in the New Statesmen, and has been interviewed on talkRADIO.¹

Photo by Edwin Hooper on Unsplash

1The interview on the Alexis Conran shows is at 1145hrs on Sunday 10 May 2020.

Wars, taxes, and excess profits

1st May 2020 by Alex Dunnagan

“The profiteering that cannot be got at by the restraints of conscience and love of country can be got at by taxation.” – US President Woodrow Wilson, 1918.¹

World leaders are using wartime rhetoric in describing the current crisis. Emmanuel Macron has declared that “we are at war”, Donald Trump has referred to the virus as an “invisible enemy”, and Boris Johnson has declared that “we must act like any wartime government and do whatever it takes to support our economy”. This language is not hyperbole.

But what does a wartime government do to support its economy? History shows us that wartime economies often bring with them radical tax innovations. Income tax was first introduced in the Napoleonic Wars, and the PAYE system (pay as you earn) was introduced in the Second World War. In this crisis we have already seen the tax system thrown into reverse to create the Furlough scheme.²

One tax that has featured in previous wars is the excess profits tax, which economists Emmanuel Saez and Gabriel Zucman have argued should be imposed by the US Federal Government as part of the response to the current pandemic.³ They rightly note that while many businesses will suffer, some will see profits increase.

In this article we take a look at what governments did in the past in relation to excess profits taxes – and how these taxes operated in practice.

In the First World War the British government saw that certain industries were doing well out of the conflict, particularly the arms manufacturers, and introduced an excess profits tax of 50 per cent of profits above the normal pre-war level. The rate was raised to 80 per cent in 1917. In 1921, the then Chancellor of the Exchequer Austen Chamberlain terminated the excess profits duty.

An excess profits tax is a tax levied on profits in excess of what is considered “normal”. While every iteration of this form of tax has been slightly different, the general rule is that an average from a pre-war period is taken. For example, Canada’s World War Two excess profits tax exempted “normal” profits taken as an average between 1936 and 1939.⁴ Administered under what is known as the “war-profits principle”, this tax is designed to recapture wartime increases over normal peacetime profits.

Various different rules and exemptions have been made in the past, for matters such as the size of the business, if the income is derived from investments, or to allow for depreciation of assets. In the First World War, in the UK a deduction of £200 per annum was allowed in the case of every business, which was subsequently increased in the case of small businesses. Administration of this tax went without serious friction, with taxpayers considering it part of their patriotic duty.

The UK wasn’t alone in introducing an excess profits tax during the Great War. Australia, Canada, New Zealand, South Africa, France, Italy, and the United States of America all introduced similar taxes. The goal was the same – to help pay for the war, and to ensure that no one outrageously benefited from a situation in which the country at large suffered.

Throughout the Second World War the excess profits tax was reintroduced. The debate in Parliament throughout the war was not over whether there should be an excess profits tax, but if the tax should stand at 100 per cent or not.

During his 1941 Budget speech, the then Chancellor of the Exchequer, Sir Kingsley Wood, stated that “The yield of National Defence Contribution and Excess Profits Tax exceeded the estimate of £70m by no less than £26m”, and that “The large surplus is due mainly to the public-spirited manner in which many firms and companies have paid over the estimated tax due from them without waiting for the figures to be finally agreed.”⁵

Wood went on to explain that the measure “is directed primarily to taking the profit out of war and ensuring that in war-time, when the whole nation has to bear sacrifices, the increased production which the war requires will not become the means of enrichment that it did in the last war.”⁶

Taxation to pay for war has been fairly popular so long as the war in question is popular too. Once you unite the people in a common cause, they have historically been quite happy to pay for it. Covid-19 is not a war of choice. If governments wanted to introduce measures such as excess profits taxes, it is likely that they would face little opposition from the public.

Photo by A Perry on Unsplash

1President Woodrow Wilson, Session of 65^th Congress, 27 May 1918.

2Coronavirus: Employment Support, House of Commons, 19 March 2020, https://hansard.parliament.uk/Commons/2020-03-19/debates/A72357FF-0207-4CE1-A3EF-B5F2D5AE5089/CoronavirusEmploymentSupport

3Jobs Aren’t Being Destroyed This Fast Elsewhere. Why Is That?, Emmanuel Saez and Gabriel Zucman, The New York Times, 20 March 2020, https://www.nytimes.com/2020/03/30/opinion/coronavirus-economy-saez-zucman.html?action=click&module=Opinion&pgtype=Homepage

4Canadian Economist Alex Hemingway has recently called for an excess profits tax – Excess profits tax needed to prevent profiteering amid COVID-19, Policy Note, 09 April 2020, https://www.policynote.ca/profits-tax/

5Budget speech, 07 April 1941, https://hansard.parliament.uk/Commons/1941-04-07/debates/047d6100-7faf-4924-bfba-2152f9a19d7b/ReviewOf1940%E2%80%9341

6Ibid

Financial services lobbyists request EU delay anti-avoidance measures

23rd April 2020 by Alex Dunnagan

A consortium of financial services lobbyists has written to the European Commission calling for a delay to the implementation of anti-avoidance measures due to be rolled out on 01 July.¹ As first reported in Law360,² the letter – also sent to the OECD and to Finance Ministers in the EU and the UK – claims that due to the unfolding Covid-19 pandemic, businesses are unable to devote enough time to complete their preparations for the reporting required.

In a separate letter seen by TaxWatch, the European Banking Federation (EBF) requested a three-month postponement of the requirement to provide information on customer bank accounts to tax authorities.

The sixth version of the EU Directive on administrative cooperation, or DAC6, aims to provide the tax authorities of EU Member States and the UK with additional information to assist in closing tax loopholes. DAC6 requires EU and UK intermediaries to file information on “reportable cross-border arrangements” to their home tax authorities. One test of whether an arrangement must be reported is if its “main benefit” is to gain a tax advantage. The definition of what an intermediary includes is broad, and includes any individual or company who sells cross-border tax arrangements, i.e. accountants, tax advisers, lawyers, banks.³ ⁴

The implementation of DAC6 has already been challenging. The way EU directives work is that they set out an objective, and give EU states a choice of how to achieve it.⁵ DAC6 was passed by the European Commission in June 2018, though individual member states were slow to implement the Directive as domestic legislation, with almost half of the EU member states missing the 31 December 2019 deadline to implement DAC6. However, should a member state fail to implement an EU Directive as domestic legislation, the Directive itself acts as a backstop – effectively meaning that regardless of action taken at a national level, businesses should have been aware that DAC6 would be coming into effect.

This is reflected by Big Four accountancy firms that have been recommending for over a year that affected institutions should begin their implementation efforts, even before member states have transported the EU Directive into local law.⁶ ⁷ Despite the two years that relevant parties have had to prepare for DAC6, lobbyists are suggesting that as some people are off work due to having the coronavirus illness, or have childcare duties as a result of school closures, that the intermediaries affected by DAC6 will be unable to comply with the requirements.

The request asks for a postponement of reporting deadlines until 2021, with a review at the end of September 2020 to see if a further extension is required.

The EBF, one of the groups lobbying for a delay of DAC6, wrote separately last week to both the European Commission and the OECD, requesting a three month postponement of the deadline for information exchange under the Common Reporting Standard (CRS). This requirement, based on the US Foreign Account Tax Compliance Act, is a global initiative to combat tax evasion, and was implemented in the UK on 01 October 2018. The CRS is used to determine the personal financial information that must be shared regarding assets, income, and taxable amounts across international borders, and is reported annually. The added transparency on a global basis provided by the CRS should allow for enhanced enforcement actions, not only against tax evaders, but also against those involved in money laundering and terrorist financing.⁸

Again, the reason given was that workforces are struggling with technology constraints due to working from home. This request is more controversial, given the fact that the CRS has been in place for several years, and is global in its scope. The other nine signatories of the 20 April request have not put their names to this letter.

This is not the first time that interest groups have sought to use the coronavirus to delay tax measures. Earlier this month we reported on how TechUK, the industry group that represents Facebook and Google amongst others, had asked the UK government for a delay to the start of the Digital Services Tax, saying that companies will be unable to cope with the burden of extra compliance during the crisis. A similar campaign is being waged to defer the Indian digital tax.⁹

The coronavirus pandemic is undoubtedly having an effect on the ability of companies to conduct business. However, given the huge amount of resources required by governments fighting the impacts of the virus, is now really the time to delay measures designed to combat corporate tax avoidance, tax evasion, and money laundering?

The full letter requesting a delay to DAC6 can be found here – Request to European Commission to recommend/endorse the deferral of EU DAC6 reporting obligations

Photo by Calvin Hanson on Unsplash

1The associations who signed the letter, dated 20 April 2020, are ACC, AFME, AIMA, EACB, EBF, EFAMA, EFSA, ESBG, Insurance Europe and Invest Europe.

2EU Should Suspend New Anti-Avoidance Rules, Lobbyists Say, Law360, 21 April 2020, https://www.law360.com/financial-services-uk/articles/1265736/eu-should-suspend-new-anti-avoidance-rules-lobbyists-say?about=financial-services-uk

3Council Directive 2018/822/EU of 25 May 2018, https://ec.europa.eu/taxation_customs/sites/taxation/files/dac-6-council-directive-2018_en.pdf

4DAC6: EU Mandatory Disclosure Regime, Deloitte, https://www2.deloitte.com/uk/en/pages/tax/articles/dac6-eu-mandatory-disclosure-regime.html

5A good explainer of how EU Directives work has been produced by Full Fact, How the EU works: EU law and the UK, Full Fact, 11 March 2016, https://fullfact.org/europe/eu-law-and-uk/

6EU Mandatory Disclosure Requirements – Update, KPMG, 08 February 2019, https://home.kpmg/xx/en/home/insights/2019/02/etf-394-eu-mandatory-disclosure-requirements-update.html

7DAC6: The clock is ticking… Less than 1 year until go-live, Deloitte, 02 July 2019, https://blogs.deloitte.ch/tax/2019/07/dac6-the-clock-is-ticking.html

8The OECD common reporting standard (CRS): FATCA is going global, Gibson Dunn, 11 June 2015, https://www.gibsondunn.com/wp-content/uploads/documents/publications/Schmid-Grunert-OECD-common-reporting-standard-BLM-02.2015.pdf

9Tech giants such as Google, Facebook seek to defer Indian digital tax – sources, Reuters, 31 March 2020, https://uk.reuters.com/article/uk-india-tax-digital/tech-giants-such-as-google-facebook-seek-to-defer-indian-digital-tax-sources-idUKKBN21I1XY

bet365 and tax havens

1st April 2020 by Alex Dunnagan

Gambling is big business. The boss of bet365, Denise Coates, has been in the press recently for paying herself the staggering amount of £323m (£277m in salary plus £46m in dividends) last year, the equivalent of £1.3m per working day. £235bn in bets have been wagered through her company over the past five years, making it one of Britain’s largest bookies, generating some £684m in post-tax profits last year alone. With a net worth estimated at £9.3bn, Coates is thought to be one of the largest taxpayers in the UK.¹ The Stoke based betting giant saw its post tax profits rise from £52m in 2009 to £685m in 2019.

However, scrutiny of the bookmaker’s accounts appear to show hundreds of millions of pounds a year in revenue generated in tax havens. In this article we delve into why this might be happening.

Almost every stock-market quoted gambling company gives a breakdown of its revenue. Family-owned bet365 doesn’t, stating in their accounts that “A geographical analysis of turnover has not been given, as in the opinion of the directors, such disclosure would be severely prejudicial to the interests of the group.” Analysts in 2018 estimated that three-quarters of revenue came from international sources.²

While the accounts are certainly not what you would call transparent, some idea of overseas earnings can be gleaned by looking at the company’s tax disclosures. Over the past five years, bet365 has seen a reduction of £176m in their corporation tax bill through what is listed as a “difference in tax of overseas subsidiaries”.

What this means is that bet365 has seen a 30% decrease in their tax bill versus what it would have been had all bets been processed in Britain, from £550m to £373m, thanks to profit generated in countries with a lower corporation tax rate than the UK. Though the amount of revenue generated in “overseas subsidiaries” is not listed in the publicly held accounts, in order to see a reduction of £176m the amount of overseas revenue must be in the billions.

Though bet365 has gambling licenses in 14 jurisdictions, the only ones with a lower corporation tax rate than the UK are Bulgaria, Cyprus, Ireland, and Gibraltar (combined population of 13m). bet365 would have to post pre-tax profits of £1.763bn in Gibraltar or Bulgaria over a five year period, jurisdictions with a corporation tax rate of 10%, in order to see a reduction of £176m in the company’s corporation tax bill. Should these profits be declared in Cyprus or Ireland, at a 12.5% corporate tax rate, the amount would have to be even higher. Either bet365 is making vast sums of money from these small jurisdictions, or another explanation is that they are using these jurisdictions to take bets from markets in which they have no license to operate.

There is much speculation online about bet365 operating in unregulated markets.³ ⁴ Ralph Topping, a former chief executive at William Hill, says bet365 probably operates in many grey markets: “They have more risk appetite than puritanical companies.”⁵

A Guardian investigation from 2014 revealed that Chinese citizens had been arrested after gambling on bet365’s website, with the company frequently changing its Chinese web address in order to side-step regulation. The report goes on to claim that the bookmaker has a call centre in Stoke employing Chinese-speakers.⁶ Along with Fixed Odds Betting which is popular in the UK, bet365 also offer Asian Handicap betting, a type of gambling which is hugely popular in China. In response, bet365 said at the time:

“There is no legislation that expressly prohibits the supply of remote gambling services into China by operators who are based outside China. bet365 has no people, assets or infrastructure in China and does not engage any agents, aggregators or intermediaries, for any purpose, in China.

“In the view of bet365, and its lawyers, Chinese law does not extend to the provision of services into China by gambling operators and service providers who themselves have no nexus with the territory. Any allegation of illegality on the part of bet365 is therefore untrue.”

When we used a virtual private network to make it appear as though we were based in China, we found no difficulty in accessing bet365’s website.

In 2019, another British gaming company was unequivocally found to be operating in grey markets. The boss of GVC, responsible for betting giant Ladbrokes Coral and Foxy Bingo, apologised to the Nevada Gaming Commission for operating in Turkey, where gambling is restricted. Nevada regulators chastised the chief executive, calling him “lackadaisical” about GVC’s operations in Turkey.

Is bet365 operating in grey markets and moving hundreds of millions in profits through low-tax jurisdictions each year? Until bet365 is more transparent, we will never know.

We emailed bet365 to ask how much they generate in revenues from countries in which they don’t hold a license. The company has not responded to our request for comment.

Photo by Chris Kendall on Unsplash

1The Sunday Times Tax List 2020: meet Britain’s top 50 tax payers, 26 January 2020, 2019, available here; https://www.thetimes.co.uk/article/sunday-times-tax-list-2020-uk-taxpayers-nhs56k95d

2bet365 stands out among rivals for more than pay, available here; https://www.ft.com/content/f40e1b44-ee60-11e8-89c8-d36339d835c0

3Are Chinese punters big users of bet365? The firm still won’t say, 21 November 2018, https://www.theguardian.com/business/nils-pratley-on-finance/2018/nov/21/are-chinese-punters-big-users-of-bet365

4UK gambling market comes under siege, 09 February 2020, https://www.ft.com/content/7eed86fc-4354-11ea-a43a-c4b328d9061c

5bet365 stands out among rivals for more than pay, 22 November 2018, https://www.ft.com/content/f40e1b44-ee60-11e8-89c8-d36339d835c0

6Revealed: how bet365 profits from Chinese punters who risk jail for gambling online, 03 October 2014, https://www.theguardian.com/society/2014/oct/03/bet365-profit-china-online-gambling

Covid 19 – Pope says tax avoiders have committed “murder”

25th March 2020 by Alex Dunnagan

In an interview last week with the Italian daily “La Repubblica”, Pope Francis held tax dodgers partially responsible for the struggle Italian health services are now going through in trying to deal with covid.¹ The coronavirus has hit Italy the hardest, with close to 7,000 deaths at the time of writing, more than double that of any other country.

As health services are being overwhelmed around the world, and members of the Vatican staff test positive for the virus, Pope Francis backed a prominent journalist’s complaint that tax avoiders are partly at fault for the current healthcare crisis.

Speaking over the phone while isolating in the Vatican, Pope Francis said he was “very impressed” by an article by journalist Fabio Fazio.² The Pope went on to quote from the article in saying:

“He is right, for example, when he says: “It has become evident that those who do not pay their taxes are not only committing a crime, but murder: if there are not enough hospital beds or respirators, they too are partly to blame”. I was very impressed by this”.*

Italian Treasury estimates believe tax evasion costs the state some 107.5 billion euros a year³. An annual report by the European Commission has Italy’s VAT gap, sometimes referred to as a compliance gap, at 24% in 2017, the most recent year for which statistics are available. Italy’s gap is one of the highest in Europe – the UK’s for example sits at 11%.⁴

Pope Francis has been vocal on tax issues in the past, referring to “tax havens for private and corporate profits” as recently as February of this year.²

In response to the Pope’s interview, Fazio tweeted that he was overcome with emotion, and that Pope Francis invited all of us not to waste this difficult time but to use it to look at ourselves and renew ourselves

These testing times may well leave behind a different world politically and economically. Whether or not it will be a better one, only time will tell.

Photo by Sins S on Unsplash

*Translators note: Fabio Fazio’s words on tax avoiders and evaders appeared as one of 15 points in an article entitled “The things I am learning”. The full text in Italian of point 7 is as follows:

7. È diventato evidente che chi non paga le tasse non commette solo un reato ma un delitto: se mancano posti letto e respiratori è anche colpa sua.

We have translated “delitto” as “murder”. “Delitto” in Italian can refer to a number of serious crimes, including murder, it is sometimes translated as “felony”. The word “reato” is also translated as a crime, but in the more general sense. Reuters, when reporting on the Pope’s citation of the article used this distinction in their translation. “It has become evident that those who do not pay taxes do not only commit a felony but also a crime”.

We do not feel this translation works in British English. The world felony denotes a subset of crime, so a felony can not be “also” a crime. The word felony is also not in common usage in Britain. The Cambridge Italian-English Dictionary defines “commettere un delitto” as “to commit a murder”. Given the context, of this article and the use of the verb “commette” in the original article, we felt that the translation – “not only committing a crime, but murder” was the correct translation in English. Translation by George Turner.

1Pope Francis on Coronavirus crisis, La Repubblica, 18 March 2020, available here: https://www.repubblica.it/vaticano/2020/03/18/news/coronavirus_pope_francis-251572693/?ref=search

2Things I’m Learning, La Repubblica, 16 March 2020, available here: https://www.repubblica.it/cronaca/2020/03/16/news/le_cose_che_ho_imparato-251384470/?ref=RHPPTP-BH-I251364842-C12-P22-S2.4-T1

3Report on the Economy Not Observed, 2018, Italian Treasury Report, available here: http://www.mef.gov.it/documenti-allegati/2018/aggiornamento_relazione_2018_x27_novembre_2018x-finale.pdf

4Study and Reports on the VAT Gap in the EU-28 Member States, European Commission, 2019, available here: https://ec.europa.eu/taxation_customs/sites/taxation/files/vat-gap-full-report-2019_en.pdf

5Pope Francis: Tax cuts for the rich and tax havens are structures of sin, Rome Reports, 05 February 2020, available here: https://www.romereports.com/en/2020/02/05/pope-francis-tax-cuts-for-the-rich-and-tax-havens-are-structures-of-sin/

6@Fabfazio tweet, 18 March 2020, Twitter, available here: https://twitter.com/fabfazio/status/1240196888701415424?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1240196888701415424&ref_url=https%3A%2F%2Fwww.repubblica.it%2Fspettacoli%2Fpeople%2F2020%2F03%2F18%2Fnews%2Fcoronavirus_fabio_fazio_intervista_papa_francesco-251595266%2F

alexd