Nearly two years ago I looked at some numbers published by Barclays Bank and optimistically concluded that the bank might be reining in its tax-haven habit.
Unfortunately that’s turned out to be bollocks.
I’d noted that Barclays had booked 15 per cent of its global profits for 2018 in the tax havens of Luxembourg, Jersey, Guernsey and the Isle of Man, compared to a massive 80 per cent of its profits in 2013.
That big decline seemed like good news: less profit booked in tax havens should mean more tax revenue being collected by a government somewhere and used (we’d hope) to pay for public goods like healthcare, social care and education.
Alas, my reckoning from the 2020 figures is that a whopping 46 per cent of Barclays’ profits last year were booked in these four tax havens.
In fact the contributions of the three British offshore tax havens haven’t changed that much. The big difference is in Luxembourg, where Barclays says it opened a corporate banking business for European clients in 2019.
The profit booked in Luxembourg has shot up to 38 per cent of Barclays’ total profit from only 9 per cent two years ago, even though the bank only employs 53 people there out of its nearly 82,000 staff around the world. That’s almost the same proportion of profit that the bank booked in Europe’s top tiny tax haven in 2013.
To give a sense of quite how big the Luxembourg effect is, Barclays’ figures point to a global tax rate on its profits for 2020 of about 22 per cent. But if you leave out Luxembourg, the tax rate on profits from all the other countries would come out around 36 per cent.
Barclays attributes its non-payment of tax in Luxembourg to tax losses from previous years, which it can offset against taxable profits, as well as dividends paid to Luxembourg from other places which are not taxable when they arrive.
It is true that those dividends may have come out of profits that have already been taxed in other places. But as for the tax losses, well, the tax expert Richard Brooks wrote extensively about Luxembourg in “The Great Tax Robbery” (Oneworld, 2013).
(I’ve not asked Barclays for comment this time, because I got a “no comment” from them last time. You can read all the disclosures here if you like, as well as Barclays’ explanations).
So what do we make of this? Transparency is supposed to generate reputational pressures on big companies but one unsurprising lesson here is that more transparency, per se, doesn’t necessarily stop them from making extensive use of tax havens.
A much bigger study of European banks, including Barclays, comes to the same conclusion. The authors find that the share of profits booked by this group of banks in tax havens hasn’t changed since 2014, despite EU rules requiring much more disclosure of their tax affairs.
Actually the days are probably over when people would imply that transparency alone can cure deep-seated problems of excessive corporate power. Transparency is better seen as a “diagnostic tool” which is vital for finding out where exactly the problems are so that they can be solved (we’d hope) by other means.
A stronger medicine is the international plan for a minimum effective tax rate on corporate profits (= paywalled, but the headline gives you the idea). The tax rate under discussion by governments has been 15 per cent, which is much too low in my view, but at least there’s more official acceptance now that too-low corporate taxation is a bad thing.
The study of European banks (see earlier link) estimates that if the banks in its sample paid tax on all their profits at 15 per cent, then governments would collect another 3-5 billion euros a year in taxes. At 25 per cent, the minimum rate preferred by tax justice campaigners, the government take goes up by 10-13 billion euros.
Given that net profits tend to be largely passed on to shareholders, these figures make clear that a minimum tax rate at a high level would mean a significant redistribution of wealth from private investors to states, at a time when states badly need the money.
It’s safe to assume that big corporations which want to continue enjoying low tax rates will be lobbying hard to insert loopholes into whatever rule is ultimately agreed. The treatment of tax losses could be an area of vulnerability: it sounds sort-of neutral but is in fact highly subjective and political.
And as for the top bankers at Barclays who are in charge of all this tax havenry? Well, based on what they’re reporting, in my opinion they’re still a wunch.