Clothing companies and tax havens

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 has two or more high-risk company types which do not serve the local population, or its ultimate holding company registered in countries on our current list of tax havens, it will score 0/100. 

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

Ethical Consumer rating for likely use of tax avoidance strategies

Company responses

In 2019 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, 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, Marks & Spencer and Next. H&M and Marks & Spencer confirmed these statements in 2021. 

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 and Nasty Gal have been heavily criticised for many reasons, but little attention has been drawn to the fact that the company that owns these brands is incorporated in a jurisdiction widely considered to be a tax haven. While this does not necessarily mean that tax avoidance is occurring, it certainly raises questions.

Boohoo Group Plc, the ultimate parent company of the group, now owns many more brands after taking over most of the Arcadia group in 2021. The operating offices of the company and its subsidiaries are primarily in Manchester, UK, whereas the Boohoo Group Plc is incorporated in Jersey. 

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 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. 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.

Ethical Consumer Tax Rating

To achieve a high score (60+)

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.

To achieve a moderate score (40-60)

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.

To achieve a low score (under 40)

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.