Clothing companies and tax havens

An estimated  £7bn is lost to the UK public purse each year as a result of corporate profits being shifted to tax havens. Alex Crumbie asks what role clothing companies might play in this.

The fashion sector has a lot to answer for and has been heavily criticised in relation to the environment and workers rights.

Ethical Consumer has also found that the companies behind many fashion brands, including the leaders of the fast fashion world, are either incorporated, or own high-risk subsidiaries in jurisdictions considered by Ethical Consumer to be tax havens.

Tax avoidance is worth a lot: according to the Tax Justice Network, an estimated that $500 billion in tax globally is avoided by multinational corporations annually.

It is important to state that the incorporation of a company in a tax haven does not necessarily mean that the company or group in question is avoiding tax. However, it does allow for the possibility of tax avoidance and so it is important to highlight it. 

Ethical Consumer’s rating assesses whether a company is likely to be using tax avoidance strategies. If a company receives Ethical Consumer’s worst rating it has two or more high-risk company types, or its ultimate holding company, registered in countries on our current list of tax havens, which do not serve the local population.

For more details about our tax avoidance rating, see the bottom of this page. 

Ethical Consumer rating for likely use of tax avoidance strategies

Worst (whole mark lost) Middle (half mark lost) No marks lost
Amazon (Amazon.com Inc) American Apparel (Gildan Activewear Inc)  ASOS (ASOS Plc)
 
Arcadia Group: Burton, Dorothy Perkins, Evans, Miss Selfridge, Topshop, Wallis (Taveta Investments Ltd) Inditex: Zara, Pull & Bear (Inditex Group) Forever 21 (Forever21 International Holdings Ltd)
ASDA (Wal-Mart Stores Inc)   H&M (H&M Hennes & Mauritz)
Boohoo, Pretty Little Thing, Nasty Gal (Boohoo Group Plc)   John Lewis (John Lewis Partnership Trust Ltd)
Fat Face (Bridgepoint Group Ltd)   Next Plc
 Gap (Gap Inc)   Patagonia
Sainsbury’s (J Sainsbury Plc)   Uniqlo (Nippon Life Insurance)
Matalan (Missouri Topco ltd)   Marks & Spencer (Marks & Spencer Group Plc)
Missguided (Nakai Investments Ltd)   White Stuff (White Stuff group Ltd)
Monsoon (Balmain Invest & Trade Inc)    
New Look (Brait SE)    
Primark (Associated British Foods)    
Tesco (Tesco Plc)    
TK Maxx (TJX Companies Inc)    

Company responses

Ethical Consumer contacted all the brands that received Ethical Consumer’s worst rating for likely use of tax avoidance strategies.

We received written responses from the companies representing the following brands: Boohoo, H&M, John Lewis, Marks & Spencer, Matalan, Next, Primark, Sainsbury’s and Tesco. The statements made by the following brands adequately clarified the company’s tax policy and resulted in an improved tax rating: H&M, John Lewis, Marks and Spencer and Next.

Subscribers can see the details of each tax rating on our website, under each company’s profile.

Fast Fashion and tax

Boohoo, Pretty Little Thing, Nasty Gal, and Missguided have been heavily criticised for many reasons, but little attention has been drawn to the fact that the companies that own these brands are incorporated in jurisdictions widely considered to be tax havens. While this does not necessarily mean that tax avoidance is occurring, it certainly raises questions.

diagram: boohoo group plc brand boohoo company structure

Boohoo Group Plc, the ultimate parent company of the group, owns several brands, including Boohoo, Nasty Gal and Pretty Little Thing. The operating offices of the company and its subsidiaries are primarily in Manchester, UK, whereas the Boohoo Group Plc is incorporated in Jersey. It also owns ABK Ltd, a holding registered in Jersey, which sits just below the Boohoo Group Plc in the company’s structure. 

When contacted by Ethical Consumer regarding its Jersey holdings, the company stated: ‘boohoo group plc and all its UK subsidiaries are registered for UK tax and pay UK taxes on all profits. There is no tax benefit to the group or any individual company from being registered in Jersey.’

In its 2019 Annual Report, Boohoo Group Plc reported that its effective rate of tax for 2019 was 20.7%, which is higher than the blended UK statutory rate of tax for the year of 19.0%. 

However, the point remains that the incorporation of the ultimate parent company in Jersey, and its ownership of ABK Ltd (Jersey), raises alarm bells. Why would the company be set up in this way?

In Jersey, there is no capital gains tax nor stamp duty. The company could, for example, potentially avoid paying these taxes on future sales of any of their subsidiaries.

We cannot be sure why Boohoo Group is incorporated in Jersey, nor do we know what role ABK Ltd plays. But this is itself a problem. This company structure allows the group a high degree of secrecy that could facilitate tax avoidance, if not at present then in the future.

diagram: missguided ltd brand company structure tax

Missguided is ultimately owned by Nakai Investments Ltd, which is incorporated in the British Virgin Islands. This collection of sunny islands in the Caribbean was listed by the Tax Justice Network as the most corrosive corporate tax haven in the world.

The Virgin Islands are attractive to businesses due to the secrecy it allows for and because it has virtually no taxes: no effective income tax, no capital gains tax, no gift taxes, no inheritance taxes, sales taxes or value-added taxes.

Missguided did not respond when asked to comment on the incorporation of Nakai Investments Ltd in the British Virgin Islands.

image: unidentifiable figures veiled by secrecy tax haven screenshot virgin islands
The website of the British Virgin Islands Financial Services Commission displays a fitting picture: unidentifiable figures of the corporate world acting behind a veil of secrecy.

Ethical Consumer Tax Rating

Best rating

Company has no subsidiaries based in jurisdictions on Ethical Consumer's tax havens list OR:

(a) the company has the Fair Tax Mark;

(b) the company has a clear public tax statement confirming that it is company policy not to engage in tax avoidance activity or to use tax havens for tax avoidance purposes AND the company provides a narrative explanation for what each group entity located in a tax haven is for, and why it is not being used for purposes of tax minimisation.

Middle rating

Two or more ordinary subsidiary companies registered in countries on our current list of tax havens, which do not serve the local population, and the company has no public country-by-country reporting or policy statement and narrative explanation.

Worst rating

Two or more high-risk company types or UHC registered in countries on our current list of tax havens which do not serve the local population and no public country by country reporting or policy statement and narrative explanation.

or

Two or more ordinary subsidiaries registered in countries on our current list of tax havens and reputable secondary criticism for tax avoidance.

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