LONDON — A judicial crackdown and mounting political pressure on legal tax avoidance are failing to deter companies from setting up in European tax havens. Growing numbers of accountants, banks and consultants are signing lengthy office leases in Luxembourg and the Channel Islands as they flock to serve customers seeking the legal ways to cut their tax bills offered by having an offshore base. That is in stark contrast to the traditional financial districts of London and Paris, where letting markets are lackluster. “The tax avoidance business is alive and well,” tax adviser turned campaigner Richard Murphy said.
“The economic downturn is not having any impact on this type of banking.” More than seven percent of offices in London's financial district are vacant - more than double the rate in Luxembourg's three business districts. Jersey's has “close to no vacant prime office space,” said consultant Montagu Evans. The equivalent of about seven soccer pitches of office space was let in Luxembourg in the first half of 2012, the highest level in four years, with almost 60 percent taken by banks, accountants and business consultants, data from property consultant Jones Lang LaSalle showed. The picture is similar in offshore centers in the Caribbean. Though hard data is thin, local property agents told Reuters the best Barbados offices are close to full occupancy while law firms and accountants expanded throughout the recession in the Cayman Islands. Offshore centers tend to be characterized by their small geographical size, low tax regimes and financial sectors that are disproportionately large to the size of their domestic economies. Last month, a Reuters report showed Starbucks had legally lowered its UK tax bill with inter-company loans, paying royalty fees to foreign subsidiaries and allocating money made in the UK to other units in so-called “transfer pricing”. Last week, British Prime Minister David Cameron said he was unhappy with the level of tax avoidance by big companies. Jersey and Guernsey are the world's top offshore centers according to the Global Financial Centres Index, which scores cities on taxation, corruption, regulation, quality of staff and airports and the ratings of local employees. In a list of global financial centers by size headed by London, they rank 21st and 31st respectively, while landlocked Luxembourg, which the index said competes in a similar way to offshore hubs, came 23rd. They gained a reputation for sheltering tax exiles thanks to banking secrecy laws and have been targeted by G20 leaders in a crackdown on secretive financial centers that includes Switzerland's banking system. Jersey and Guernsey generally tax companies at zero percent, while Luxembourg has low sales taxes and does not charge companies on interest made from loans to the UK. In 2009, all three signed up to an international ‘white list' of areas that are attempting to clean up their act by agreeing to internationally agreed tax standards. But the recent reports linking them to tax reduction strategies by companies including Amazon and British celebrities such as comedian Jimmy Carr have triggered political anger and kept the negative image alive, even though what they do is legal. “Businesses don't always take notice of public outcry,” said Prem Skikka, professor of accounting at the University of Essex. Societe Generale took the most space of any company in Luxembourg in the first half of 2012, signing a deal for about 98,000 square feet in a new office block for about 10 years, local property agents said.
The bank declined to comment. “It may sound counterintuitive but what's been driving the Luxembourg market for the last 12 months is the financial sector,” said Pierre-Paul Verelst, Jones Lang LaSalle's head of research for the Benelux region. Chinese banks are also shifting their European offices from London to Luxembourg. – Reuters
