The number of companies registered in tax havens investing in Scotland over the last decade has increased by nearly 60 per cent.
Analysis of Scottish Government data by The Ferret found that in 2020 there were 135 firms registered in the Cayman Islands, Bermuda and British Virgin Islands operating, compared to 80 in 2010. Their collective turnover last year amounted to just over £4bn.
Tax havens allow businesses and super-rich individuals to lawfully avoid tax on their money by storing it in offshore accounts. Often they do not share transparent financial information nor require businesses or individuals to operate out of the country to gain tax benefits.
In 2010 there were 25 firms registered in Bermuda investing in Scotland, 25 in the British Virgin Islands and 30 from the Cayman islands. By 2020, these figures had increased to 35, 40 and 60 respectively.
Campaign group Tax Justice Network, sees tax avoidance as morally wrong and says the British Virgin Islands is ranked as the “greatest enabler of corporate tax abuse”, with the Cayman Islands in second place and Bermuda third.
Alex Cobham, chief executive of the Tax Justice Network, said the threat of tax avoidance has “grown significantly” but there are “simple steps” the Scottish Parliament could take to reduce the risks. He said all businesses operating in Scotland – regardless of ownership – should be required to meet the same tax and financial transparency standards.
Cobham added: “This should include publishing full accounts and the identities of the (human) owners. Multinational companies that are already required to provide country by country reporting to HMRC should be required to make this data public also, as the likes of Vodafone and Shell already do voluntarily.
“Businesses like Scotmid Coop and SSE have been accredited with the Fair Tax Mark, and this provides effective criteria should policymakers wish to improve standards nationally.”
Ben Cowdock, of Transparency International, said: “Whilst the use of companies based in Britain’s Overseas Territories is not illegal, our research has shown that due to the anonymity they offer, they have been a tool of choice for those seeking to hide business arrangements.
He added: “Previously, research by Transparency International UK has found 1,201 companies from six of the UK’s 14 Overseas Territories featured in 237 corruption cases amounting to hundreds of billions of pounds worth of funds allegedly diverted by rigged procurement, bribery, embezzlement and the unlawful acquisition of state assets.
“The British Virgin Islands, Cayman Islands and Bermuda have now committed to publishing the names of company owners. These measures should be introduced as soon as possible to deter the criminal use of firms registered in these jurisdictions and give the public confidence that illicit funds are not being invested into the UK.”
A Scottish Government spokesperson said that because corporation tax is reserved to Westminster, its ministers have no power to act in this area. The spokesperson added: “We believe that businesses have an ethical obligation to deal openly with their tax affairs and not to engage in artificial arrangements simply to reduce their tax liabilities.
“These principles sit at the core of our Scottish approach to taxation – we believe in fair taxation that supports economic growth and protects Scotland’s position as an attractive proposition for home-grown and overseas investors.
The Ferret’s analysis of official data also found the number of companies from Asia investing in Scotland has more than doubled since 2010.
In 2020 there were 300 firms from Asia operating in Scotland compared to 145 in 2010 – an increase of 107 per cent.
Over this period the number of people employed by Asian companies rose from 12,720 in 2010 to 24,890 last year. Their collective turnover in 2020 was £8.13bn.
The top five sectors for investment were business services, software and IT, industrial equipment, metals and pharmaceuticals.
Japan leads the way
Japan has led the way. In 2020 there were 105 Japanese firms employing 7,710 people compared to 65 in 2010 employing 3,480 people.
The number of companies from Singapore doubled over the decade from 20 in 2010 to 40 last year. There were 10 Indian firms in 2010 but this trebled to 30 in 2020, while Hong Kong companies increased from 10 in 2010 to 45 in 2020.
Firms investing include Toshiba, Samsung, Mitsubishi and Fujifilm. Recent projects include Scottish and Japanese companies working together on subsea technology. These collaborations involve companies from Aberdeen, Inverness, Edinburgh, Coatbridge and Livingston.
Roddy Gow, chairman of the Asia Scotland Institute, told The Ferret: “The attractiveness of Scotland for inward investment is obvious based on the data from the Scottish Government showing steady growth in the number of businesses from countries and cities in Asia in the past decade.
He added: “The standout opportunities for further inward investment are also clear from the data. Japan is the country in Asia that is the leader in investment in Scotland, and given the long standing corporate links between the two countries there are opportunities to attract further investment.
“It is imperative that in Scotland we seek these opportunities now and have the full support of the Scottish and UK governments. The Scots have a long history of going to Asia, but now Asia can come to Scotland to invest in this country and its people if we project positive messages about our future.
A Scottish Government spokesperson said: “Despite the challenges presented by the pandemic, foreign direct investment into Scotland increased by six per cent in 2020, compared to a 12 per cent fall across the UK as a whole, making Scotland the top UK inward investment location outside London for the sixth year running.
“While the United States remains the largest source of foreign direct investment, Asian investors are increasingly attracted to Scotland’s global strengths in sectors such as IT services and pharmaceuticals.
The data also showed the number of French firms increased from 155 in 2010 to 160 in 2020, while the number of German firms rose from 145 to 175. Dutch companies investing rose from 150 to 210 over the period.
The US remains the biggest investor in Scotland. In 2010 there were 535 firms employing 96,590 people. By last year this had risen to 660 employing 112, 740 people.
This investigation is part of our Who Runs Scotland series. We will be shedding a light on ownership and power in Scotland’s economy, environment and politics.
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Photo Credit: Olivier Le Moal/iStock