ICAP LUX Leaks Tax Dodging Has Links To Suffolk Coastal 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 Suffolk Coastal parliamentary constituency area that Michael Spencer, whose company ICAP was involved in tax avoidance using the Luxemburg loopholes, lives in the area and has donated over £5m to the Conservative Party since 2001.
ICAP 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 ICAP 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.
Michael Spencer who lives in Suffolk Coastal is ICAP Chief Executive. He is ranked 189th on the Sunday Times 2014 Rich List with £530m, up £105m on the previous year. He has donated over £5m in cash, auction prizes and sponsorship to the conservative party since 2001 and was party treasurer from 2006 until 2010. He has been Chairman of The Conservative Foundation since 2011.
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 Michael Spencer 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: Cath Speight GMB National Political Officer 07506 711925 or 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 ICAP operated in Luxemburg:
One of the 340 companies that had their secretive tax deals released by the ‘Luxembourg Leaks’ exposé is ICAP while restructuring its European Business.
At the time PWC were advising this project (2010), ICAP were the world’s premier voice and electronic interdealer broker. ICAP is active in the wholesale markets in interest rates, credit, commodities, foreign exchange and equity derivatives with an average daily transaction volume in excess of $2.3 trillion. They now have offices in 32 countries and more than 70 locations. As of year ending 2014 they have revenue of £1.4 billion with a profit before tax of £122m (paid £22m in tax). In 2013/14 Michael Spencer’s total remuneration was £2.2m (down from £4.3m in 2012/13).
ICAP had a financial structure in Luxembourg involving a Luxembourg branch of a UK company, ICAP US Holdings No2 Luxembourg branch which holds two Luxembourg companies, ICAP Luxembourg Holdings No 1 S.a.r.l. and ICAP Luxembourg Holdings No 2 S.a.r.l. The restructuring, which PwC advised on, was to transfer a Norwegian Company, ICAP Energy AS, from a US sub-group to the Luxembourg structure under a new Luxembourg company, ICAP Luxembourg Holdings No 3 S.a.r.l.
ICAP Luxembourg Holdings No 1 and No 2 S.a.r.l received a total of $247m in interest on their loans to the US in the last 7 years. Tax savings from this complex tax structure run into many tens of millions of dollars.
Further information on this restructuring project can be found here: http://www.icij.org/project/luxembourg-leaks/explore-documents-luxembourg-leaks-database
Head Office: 2 Broadgate, London EC2M 7UR
Directors of ICAP are:
Charles Gregson - Chairman
Michael Spencer - Group CEO
John Nixon - Executive Director
John Sievwright - Senior independent director
Diane Schueneman - Non-executive director
Robert Standing - Non-executive director
Ivan Ritossa - Non-executive director