Familiar story

Many of the corporate sponsors are no stranger to the more traditional tax havens. The table below shows the 18 partner companies and the subsidiaries they have in tax havens. The long list contains all the usual suspects such as the Cayman Islands, Jersey and the British Virgin Islands. General Electric’s list of subsidiaries was most interesting. It included 71 subsidiaries listed in just one building in Ireland! Only one of the partner organisations, British Airways, appeared not to have subsidiaries registered in any tax havens.

It is also worth mentioning that several of the companies, including Visa, Coca-Cola and Dow, have subsidiaries incorporated in Delaware, and two – Samsung and Acer – are now using export processing zones in China. The new legislation also exempts all foreign nationals working on the games.

How much is at stake?

To get a rough idea of just how much money is likely to be lost, it is useful to look at the FIFA World Cup as the two events share similar characteristics. In the last World Cup in South Africa the hosts were asked to create a ‘tax bubble’ through ‘revenue amendment laws’ passed in 2006. This creates a situation much like the one at the London Olympics through the legislation passed through the British Parliament in the same year.

According to research released by the German Government at the 2006 World Cup in Germany, the German football association (DFB) paid 101 million Euros (around £87.8m) in various taxes on its activities during the tournament. Due to The London Organising Committee being exemption from Corporation Tax, this potential revenue stream will be lost. (2)

Germany also taxed the non-resident players and trainers as normal, charging them 21.1% on their football fees and bonuses, and other commercial earnings, for instance, from appearing in adverts. That raised just over seven million Euros (£6.1m). (2)  Due to the new legislation, the UK is not taxing such earnings.

Meanwhile FIFA earned more than 2.8 billion Swiss Francs (£1.72bn) in the four years up to and including the competition, mainly from selling broadcasting rights, sponsorship, hospitality packages and licensing rights in advance, plus a share of the local organising committee’s eventual profits from the tournament. Much of that will have gone directly to FIFA in Switzerland, outside the scope of the German tax net. Yet the committee paid just one million Swiss Francs (£613,500) in tax to the Swiss authorities and nothing to the German treasury. (2)

Like FIFA, the International Olympic Committee (IOC) is based in Switzerland and will therefore enjoy the same low tax rates. In addition it is exempt from paying tax in the UK on any monies earned from the London Games.

Currently the IOC is projected to earn revenues of £2.7 billion from the London Olympics and the total amount of lost tax revenues is estimated to be over £600 million.(7)

LOCOG itself (the London Organising Committee of the Olympic and Paralympic Games) is also exempt from taxation.

The body is chaired by Paul Deighton, a former Chief Executive of Goldman Sachs during the period the bank were using offshore schemes to pay executive bonuses.(5) LOCOG itself is also using much-criticised employee benefit trusts, often registered in Jersey or Guernsey, to pay organiser’s bonuses once the Games are over.(6)

With the additional sums that LOCOG could have been liable for, the total figure lost approaches £700 million. This calculation doesn’t even take into account the potential tax income from the profits of corporate partners who will also enjoy the generous tax breaks previously mentioned.

Lost revenue

So, despite putting severe weight on London’s public infrastructure, those profiting from the games and many of those working at them will be exempt from tax. In a time of austerity this is money the Exchequer can hardly afford to loose, especially when it has already paid out somewhere in the region of £11 billion to fund many parts of the project. (3)

Even arch capitalists, such as the credit rating agency Moody’s, have stated that “Overall, we think the Games are unlikely to provide a substantial macro-economic boost to the UK during 2012. However, a number of individual sectors and creditors [banks] look well placed to benefit from the short-term fillip that the Games should provide.” Their report goes on to say that those who will benefit most from the games are the corporate sponsors. This is hardly surprising given the tax breaks they will enjoy. (4)

In effect, the Olympic Games, like many other major sporting events, have become a lesson in tax avoidance. The perpetrators of the tax schemes are, in most cases, serial offenders and local legislators (in this case the UK Government), who, under the fear of being passed over in favour of other countries, pass new legislation to legalise tax avoidance.

This tactic of ‘reduce your tax thresholds or we’ll take our business elsewhere’ has long been used by financial elites in tax havens but it is now being extended, albeit on a temporary basis, to countries with usually strong legislators via major sporting events from the FIFA World Cup to the London Olympics. Some of the laws have already been extended to cover the Commonwealth Games in Glasgow in 2014, and this process of relaxing tax rules looks set to continue with costs borne, as ever, by ordinary tax payers.

References: 1 www.hmrc.gov.uk/2012games/tax-exemptions/bus-profits-exemption.htm  2 www.bbc.co.uk/news/10091277  3 www.opendemocracy.net/ourkingdom/kerry-anne-mendoza/our-olympics-case-for-reclaiming-london-2012-games  4 www.telegraph.co.uk/finance/newsbysector/constructionandproperty/9238712/Olympics-unlikely-to-boost-economy-says-Moodys.html  5 Private Eye Issue1313. 4th May 2012  6 LOCOG Annual Report 2011  7 Liz Ellen PROTECTING SPONSORS AT THE LONDON 2012 OLYMPICS. January 2010  8www.thisismoney.co.uk/money/news/article-2009104/Olympics-stars-face-taxed-promotional-work-London-2012.html

Amended July 5th 2012: McDonalds have a monopoly on branded food sales not on total food sales.