Schroeders Lux Leaks Tax Dodging Has Links To Hemel Hempstead Tory Donor And Is Tip Of UK Tax Shirking On Industrial Scale
UK Crown territories that refuse to play by transparent tax rules need to be stripped of links with the Queen and look elsewhere for new Head of State says GMB.
GMB is advising the electorate in Hemel Hempstead parliamentary constituency area that David H Thomas, whose company Schroeders and Co were involved in tax avoidance using the Luxemburg loopholes, lives in the area and with others linked to the company are donors to the Conservative Party. (See paragraph below for details.)
Schroeders is one of the 340 global companies identified by the International Consortium of Investigative Journalists (ICIJ) investigation whose files have become available thanks to the ‘Luxembourg Leaks.’ The leaks, over 28,000 pages of tax documents, show a confidential cache of secret tax arrangements approved by the Luxembourg Authorities that provide tax relief for these companies. With complex structures, the global companies can avoid billions in taxes by routing their profits through Luxembourg. See information in notes to editors on what is known re Schroeders using Luxemburg.
Tax avoiding companies use the Luxembourg tax system for the treatment of interest with companies registered in Luxembourg being exempt from tax on interest income. Another benefit of the Luxembourg tax system is the 80% tax exemption on income from intellectual property which foreign subsidiaries pay for the use of brand names, patents and distribution rights and the money ends up in Luxemburg. See notes to editors for details of how companies use loopholes to avoid paying taxes in UK.
David H Thomas, director of Schroder & Co Ltd donated £2,000 in 2009 to Hemel Hempstead Conservatives. Bruno Schroder, fourth generation of the wealthy banking dynasty to operate their financial services company, has an estimated net worth of $5.7bn and given £22,885 in non-cash travel donations. Robin Buchanan was senior partner of Bain & Company and remains a senior adviser. Bain & Co have donated £44,000 in staff costs to the Conservative party. George Mallinckrodt, the bank’s former chairman and his wife Charmaine (sister of Bruno Schroder) donated £9,850 to the Conservative party in 2004 and 2005. Their son, Philip Mallinckrodt, is currently on the board of Schroder as Group Head of Wealth Management.
Paul Kenny, GMB General Secretary, said "Tax avoidance and tax evasion on an industrial scale is endemic, systemic and deep rooted in the City and for wealthy people like the Schroeders family across the UK.
Secrecy jurisdictions i.e. tax havens - use secrecy to attract illicit and illegitimate or abusive financial flows.
Luxemburg is not an isolated case. Secrecy in tax matters in UK territories combined lead to them to top the world tax avoidance league table and UK companies make full use of this secrecy.
An estimated £20,000 billion of private financial wealth is located, untaxed or lightly taxed, in secrecy jurisdictions around the world.
A global industry has developed involving the world's biggest banks, law practices and accounting firms which not only provide secretive offshore structures to their tax- and law-dodging clients, but aggressively market them. 'Competition' between jurisdictions to provide secrecy facilities has, particularly since the era of financial globalisation took off in the 1980s, become a central feature of global financial markets.
The secrecy world give rise to fraud, tax evasion and aggressive tax avoidance, escape from financial regulations, embezzlement, insider dealing, bribery, money laundering and creates political impunity.
The next Labour Government has to use all its powers to stop this secrecy. Crown territories that refuse to play by the rules need to be stripped on links with the Queen and look elsewhere for a new Head of State. "
Contact: Kamaljeet Jandu, GMB National Equality and Diversity Officer on 07956 237178 or Gary Doolan, GMB National Political Officer on 07852 182358 or Martin Smith, GMB National Organiser on 07974 251722 or GMB Press Office 07921 28988.
Notes to editors
1 How the Luxemburg tax evasion works
A company sets up a subsidiary in Luxembourg and use accounting tricks to avoid paying 100’s of millions in tax bills. Luxembourg has a corporate tax rate of 29% but corporations use accountants to devise complex tax avoiding schemes. The Luxembourg government approves these private deals, tax rulings, and the 29% tax rate is cut to almost zero.
There are 3 tricks:
1 – Internal Loans
Sets up internal lending structures in Luxembourg – like setting up your own bank which you use to lend money to yourself, overseas. Your international part pay the money back plus interest shifting cash back into tax friendly Luxembourg.
2 – Royalty payments
A Luxembourg subsidiary can take control of a company brand name and then charge for its use overseas. Hefty royalties are paid back into Luxembourg where there’s an 80% tax exemption.
3 – Turning losses into wins
Losses can be put to good use. Decreases in the value of investments can be used for a tax offset against future profits without having to sell the investment.
This is why some of the biggest names in global business have set up Luxembourg outposts.
More complex version
Financial structures are used in Luxembourg which pay very little tax and secure them tax deductions in the countries where they do most of their business.
Ordinarily if an HQ is paid for supplies it sends to a subsidiary in another country the subsidiary can claim a tax deduction for those supplies. But the HQ is taxed on the payments it receives.
So, HQ provides loans – taxed on interest
Subsidiary – will get tax deduction
This is where Luxembourg comes in. The HQ sets up a branch in Luxembourg and a separate financing subsidiary. It uses loans and interest charges to shift profits from doing business where the subsidiary was based into Luxembourg. The subsidiary tells it’s tax authorities that it is paying interest on a loan from its Luxembourg company. As before, interest payments are tax deductable so it pays no tax but interest income is taxable in Luxembourg so you would expect tax to be levied. Separately, the HQ lends a similar amount to its branch in Luxembourg, mirroring the loan from the Luxembourg financial structure to its subsidiary. It persuades the Luxembourg authorities to consider both of its Luxembourg offices under one tax return. Used together, they say the loans to the subsidiary are effectively being passed on from the HQ. This allows the HQ in Luxembourg to claim a tax deduction. This almost entirely cancels out the tax bill created by its interest income from the subsidiary company.
It could be expected that tax would finally be charged in the home of the HQ when it receives interest income. But the authorities view the Luxembourg branch as an integral part of the HQ so no payments are seen. Consequently the tax authority see nothing which can be taxed. We now see a tax deduction by the subsidiary company. No corresponding tax charges in the home of the HQ and almost no charges in Luxembourg.
2 How Schroders operated in Luxemburg:
One of the 340 companies that had their secretive tax deals released by the ‘Luxembourg Leaks’ exposé is the global fund management company, Schroders.
At the time PWC were advising this project (2008), Schroders had €190m under management with 38 offices in 28 countries. Schroders had over 900 investors in its property funds including pension schemes, charities, life companies, government bodies, banks, property companies, private trusts and individuals. They currently have £276.2bn under management, employing over 3,500 people.
Schroders had been investing in European real estate via its Luxembourg company and PwC were advising on a new structure, jointly funded with Asia Pacific Land Group, to manage investments in Japan.
Further information on Schroders Project can be found here: https://s3.amazonaws.com/s3.documentcloud.org/documents/1345744/schroders-2008-tax-ruling.pdf
European Head Office: 31 Gresham Street, London EC2V 7QA.
Schroders have offices throughout the word including: Argentina, Bermuda, Brazil, Canada, Cayman Islands, Chile, Mexico, USA, China, Hong Kong, Indonesia, Japan, Singapore, South Korea, Taiwan, Denmark, Germany, France, Gibraltar, Guernsey, Italy, Jersey, Luxembourg, Netherlands, Austria, Spain, Switzerland, Sweden and Dubai.
Of the 177 listed subsidiary and holding companies, 46 are operating from tax havens: 7 in Bermuda, 5 in the Cayman Islands, 28 in the Channel Islands, 3 in Luxembourg and 5 in Switzerland.
Directors of Schroders plc are:
Andrew Beeson - Chairman
Michael Dobson - Chief Executive
Peter Harrison - Head of Investment
Richard Keers - Chief Financial Officer
Philip Mallinckrodt - Group Head of Wealth Management
Massimo Tosato - Executive Vice Chairman
Bruno Schroder - Non executive Director
Ashley Almanza - Non executive Director
Luc Bertrand - Independent Director
Robin Buchanan - Non executive Director
Lord Howard of Penrith - Non executive Director
Nichola Pease - Non executive Director