Friday 20 October 2017

The major Irish firms in tax haven territory

Some of the biggest listed Irish firms have subsidiaries in so-called 'tax havens', like the British Virgin Islands, Jersey or Luxembourg. They say it's not to reduce their tax bills - so why are they there?

Many of the companies listed are major taxpayers here and in other countries where they have operations
Many of the companies listed are major taxpayers here and in other countries where they have operations

Nick Webb and Paul O'Donoghue

Some of Ireland's biggest listed companies - ranging from bookmaker Paddy Power to drinks giant C&C and food behemoth Kerry group - have subsidiaries or joint ventures in tax havens, Sunday Independent research has found.

The subsidiaries are registered in well-known offshore tax havens, such as the British Virgin Islands (BVI) and Cayman Islands, as well as bigger "onshore" countries which have been criticised for tough corporate secrecy rules, low taxes or lax regulatory regimes.

It's important to note that company's presence in one of these regions or dependencies does not itself demonstrate tax avoidance in any country, and there is no suggestion any of the listed companies have any offshore structures not permitted under Irish or UK law - and many of the companies listed are major taxpayers here and in other countries where they have operations.

However, given the pressure on the so-called tax havens for greater transparency and an increased focus on offshore secrecy, highlighting the use of these jurisdictions by Irish companies is important.

The OECD, US National Bureau of Economic Research and the Financial Secrecy Index have included Switzerland, BVI, Guernsey, Jersey, Isle of Man and Luxembourg on its lists of tax havens, although these countries dispute this classification and moves to improve the transparency of the British dependencies have been under way for a number of years.

Drinks maker C&C has dozens of subsidiaries, the majority of which are based in Ireland, such as mineral water supplier Tipperary Natural Mineral Water company.

The firm also has three companies registered in Luxembourg: C&C IP Sarl, C&C IP (No. 2) Sarl and C&C Luxembourg Sarl. C&C previously ran into controversy regarding the Luxembourg subsidiaries after it emerged during the Luxleaks controversy that C&C Luxembourg had almost half-a-billion euro in assets, but employed no staff.

At the end of February 2013 C&C Luxembourg recorded a profit of €13m and paid tax of €60,291. A statement from C&C said that C&C "has a very conservative tax structure", adding that as an Irish company, its principal corporate tax rate is 12.5pc but the effective tax rate is higher, "as C&C pays tax in all the markets where they operate".

A spokesman for C&C did not comment on the Luxembourg subsidiaries.

Aidan Heavey's Tullow Oil has subsidiaries in BVI, Jersey, Isle of Man and Guernsey. Tullow (EA) Holdings is registered in BVI, with Tullow Oil International Ltd in Jersey. The oil group has 12 subsidiaries in offshore jurisdiction.

"In short... these companies don't help us to avoid tax and are not used to do so. In 2013, we paid an effective tax rate across the group of 32pc," Tullow told this newspaper.

The company often held assets in jurisdictions like the Isle of Man because of risks over ownership in the countries where drilling occurred and also to mitigate against being double taxed for the same earnings.

"Recent changes in UK tax law mean that the double taxation risk has gone away so Tullow now uses British companies. For example, our most recent 'new' company is Tullow Jamaica, after we entered licences there late last year, and it is a British company," according to Tullow.

Another resources company, Kenmare, also has a number of subsidiaries in Jersey. It did not comment.

Paddy Power has a treasury company called Paddy Power Luxembourg Sarl in Luxembourg as well as Paddy Power Holdings Ltd in the Isle of Man. It also has a number of other bookmaking and games development subsidiaries in the Isle of Man.

"It is not our policy to discuss our group corporate structure," said a spokesman. "Paddy Power is fully compliant with our tax requirements in every jurisdiction in which we operate."

Kerry Group lists Kerry Luxembourg Sarl and Zenbury International Limited Sarl as subsidiaries in Luxembourg. Both firms as described as "services" companies.

"We have a representative office in Luxembourg and a significant presence there. We pay tax in Luxembourg as we do in all jurisdictions, including a significant level of taxes here," said Kerry.

The Luxembourg companies do not play a role in reducing Kerry's tax bill.

Financial services group IFG has a group finance firm in the Isle of Man, with two other subsidiaries in Jersey. It also owned a BVI-registered firm.

"IFG Group is fully tax compliant in each jurisdiction in which it operates. Taxes are paid where business operations are carried out, ie the IOM- and Jersey-registered companies are UK tax resident. The Asian business, which was Japanese tax-resident, has been sold," said IFG.

Aer Lingus owns two subsidiaries - Dirnan Insurance Company Ltd and Aer Lingus Beachey Limited - which are based in Bermuda and the Isle of Man respectively. Both are dormant, according to the airline, and are "expected to be closed in due course".

Banana company Fyffes lists a number of Jersey-based subsidiaries in its annual report. "The Fyffes companies in Jersey have been dormant for around the last ten years," according to the company.

Kingspan has a 100pc owned subsidiary called Kingspan Overseas Investments Ltd in Jersey, It also has Kingspan Holdings (Luxembourg) Sarl in Luxembourg and a "sales and marketing" firm in Switzerland. It did not comment.

Sandwich maker Greencore has a subsidiary in Jersey and a Delaware-registered firm called Greencore USA Inc. It did not comment.

Swiss-Irish frozen bakery company Aryzta has much of its subsidiaries in either Ireland or on mainland Europe, but also holds a 21.8pc stake in Valeo Foods Group Ltd which has its registered address in Jersey. Aryzta had not responded to a request for comment at the time of publication.

CRH, Ireland's most valuable company, has operations around the globe. CRH documents show that it has a number of Delaware entities as part of its corporate structure including CRH America Inc and CRH Finance Inc.

"The two companies identified are linked to CRH's extensive US operations. They are located in Delaware because of its business friendly environment (eg. ease of incorporation, simple M&A rules). Both companies pay the full federal tax of 35pc and are fully tax compliant. CRH Americas Inc is the holding company for a significant number of US subsidiaries and is also the issuer of CRH's $ bonds and CRH Finance provides finance to the US operations," CRH said.

Ferry company ICG lists a "ship leasing" subsidiary called Zatarga in the Isle of Man. It did not comment.

Brian Keegan, the director of tax with Chartered Accountants Ireland, argues that there are many possible reasons why a company might choose to have a subsidiary in countries such as Luxembourg or Jersey that could be wholly unrelated to taxation issues.

"Currently there is an assumption that if any multinational company is locating anywhere in the world that is not their country of origin then it is for tax purposes, often this is not the case.

"They might be looking to move into a different market and expand their foreign operations. In my experience tax is a factor, but it often isn't the top issue," he said.

He added that "we now know from Luxleaks that quite a few countries have gone to Luxembourg for various reasons", however he contends that there has been a lack of focus on how tight tax-avoidance laws are in Ireland.

"If an Irish company is going to other countries, you often need to have a substantial presence in different markets to avail of tax benefits there," he said.

"There is a focus at the moment on where multinationals locate. But if the notion is out there that multinationals only locate in countries such as Luxembourg because of tax reasons it often isn't it."

A senior tax source at a major auditing firm, who declined to be named, echoed much of Mr Keegan's analysis and argued that it was possible to question in a similar vein why multinational companies would have a presence in Ireland.

"Irish companies locate in countries such as Luxembourg for a variety of different reasons. You could ask the same questions of why a multinational would have subsidiaries in Ireland," the source said.

Multinationals lower their tax bill through planning, as has been seen here in the context of the double Irish. The source conceded that an attractive aspect of Luxembourg was the fact that companies often end up paying a fraction of the country's headline tax rate on their profits.

"Luxembourg is a very small country and like many small countries specialises in a small range of activities [such as] on the investment fund and banking side. Luxembourg is an effective way to treat some group finances at a much lower rate, which is why some companies might locate their lending from there," the source added.

The role of corporate subsidiaries in so-called "tax havens" will of course continue to be raised by lobby groups such as Oxfam and Action Aid, as a quick and easy means to highlight the growing inequity in wealth distribution between rich and poor countries as well as to highlight corporate governance issues.

Changes in tax laws may gradually make these havens less attractive. But clearly not yet.

Sunday Indo Business

Also in Business