How Walmart corrupted ASDA, at the taxpayer's expense

Walmart is the world’s largest corporation. It truly is the poster child for corporate America and boasts an annual revenue of $482,000,000,000.

What people are often not aware of, is that Walmart is stripping capital out of countries where it was earned and laundering it through a complex web of subsidiary companies in tax havens around the world.

Currently, it is estimated that there is upwards of $76,000,000,000 hidden in these tax havens. This corporate behaviour is seldom seen in retail, but due to Walmart’s global reach, they have been able to exploit the same tax avoiding schemes normally reserved for Banks. This allows Walmart to shift profits offshore through unfathomably convoluted methods.

Subsidiary companies established to avoid taxation

In 1999, Asda was bought by Walmart for £6.7 billion for it to become one of many subsidiaries of the giant multinational company. Under Walmart governance the store saw great increases in profit year on year, but in 2008 Asda generated £520.4m in profit before tax, which was down from £532.7m the previous year.

This, on the surface of it, seems like the store had declined in that year and therefore, logically, the chief executive has not done the best of jobs for that year. This, however, was not the case. Asda’s accounts for the year revealed that chief executive Andy Bond’s pay, not including pension contributions, rose by 19% to £1.27m.

This pay rise is likely due to ‘group restructuring’ that involved Wal-Mart Stores (UK) to ‘sell’ 3.1bn ordinary shares in Asda in return for a £5.7bn cash payment and £1.24bn in shares from Corinth Services Limited, which is also a subsidiary of Wal-Mart Group Company.

At the same time as this deal was taking place, five Asda directors were appointed to Corinth’s board, joining existing directors Andy Bond, Asda’s chief executive, and Judith McKenna, Asda’s finance director.

An Asda spokesman said this was underpinned by ‘good financial management’ reasons. When asked if the move was tax driven, he declined to comment, and insisted that the companies were registered in the UK.

While the spokesman went out of his way to stress that Corinth was a UK registered company, this serves to implicitly say ‘we aren’t using offshore tax havens as shell companies’. However, because these corporations have the best legal minds at bay, this point becomes moot. Our taxation system is dated and cannot accurately regulate a globalised economy, and because of this tax can be greatly minimised here in the UK via unfathomably convoluted methods. For instance, this year, Corinth had a tax bill of £4,660,000 on profits of £431,353,000 (see below).

While this is the amount of tax they were liable to pay, they actually got a tax credit for this exact amount of money (see below). Also, notice the year before that saw a tax credit of £128,747,000.

Asda will argue that this money was paid in some way shape or form by one of the other subsidiary companies in the corporate structure. But, this just highlights the lunacy of corporate management. Why on earth does one company need several different companies to handle business? The ‘group restructuring’ certainly didn’t simplify the company’s operations, but rather allows ASDA to thrive in the obscurity of corporate tax law that relies on exploitation of loopholes.

Use of tax havens

This network of subsidiary companies is governed by intermediate parent companies in tax havens which allow the company almost complete privacy from scrutinising eyes. While we cannot, legally, access the accounts of these companies in tax havens, the very nature of the tax havens leave very little to the imagination and provides compelling circumstantial evidence that subsidiaries are an integral part of the Walmart’s global business affairs.

The first thing that is glaringly apparent is that Walmart conducts no retail business from these tax haven subsidiaries and rarely employ anyone below director. The second cause for suspicion in this dubious corporate behaviour is that Walmart has 27 subsidiaries in Luxembourg and the Netherlands with assets valued at $77.6 billion. There is no verifiable information about assets held in other tax havens

As detailed earlier, Asda is owned by Corinth Services Limited, and as the spokesman stated, it is domiciled in the UK. However, Corinth Services Limited has an intermediate parent company between itself and Walmart Inc. What the spokesman did not disclose is that Corinth is owned by Amsterdam based ‘Broadstreet European Holdings cooerpatie BA’, and Luxembourg based ‘Azure Holdings Sarl’ – to which Walmart is the ultimate parent company.

The rationale behind this is that Walmart transfers ownership of its foreign operating companies to subsidiaries in tax havens. The UK has at least 10 of these subsidiaries operating under the guise of ‘holdings groups’ or ‘investment services’. They have no employees below that of director and pay virtually no tax.

Ownership is then transferred from these subsidiaries to shell companies in tax havens.

These shell companies play a middleman-like role in multinational corporations’ international tax-planning strategies as they are not expected to pay income tax where the money was earned. Rather, they are *expected* to pay taxes in their home country, the US, on the income they receive from the entity. This system allows Walmart to effortlessly shift earnings around the globe.

In 2016 Asda transferred a £450 million dividend to Asda Holdings UK limited. The dividend was the first Asda had paid to Wal-mart since 2009 and the biggest since the £1.4 billion it paid in 2003.

A further trail of documents shows a higher dividend sum of £505 million was then transferred from yet another Wal-Mart owned company based in Britain to Amsterdam based Broadstreet European Holdings cooerpatie BA. It should be noted that ASDA’s profits have been down this year, and therefore seems odd that they make dividend payments at this time.

While Walmart is concentrating a lot of its foreign earnings in Luxembourg through dividend payments, they’re paying very little tax there. Between 2010 and 2013, Walmart’s subsidiaries reported paying 0.18% tax ($2.4 million) to Luxembourg on $1.3 billion in profits.

Not only does Walmart strip earnings out of countries via the methods discussed, they also generate about $1.5 billion worth of tax deductions in Luxembourg each year by making ‘phantom’ interest payments to WMT Global Holdings Limited Liability Partnership - registered in the UK but owned by Wal-Mart international holdings Inc. and WM Sarhco 1, LLC - by using what tax planners call hybrid loans which effectively makes this income disappear for tax purposes in both Luxembourg and the US.

Money is also ‘invested’ in various tax havens such as the British Virgin Islands and Luxembourg.

The company has its foreign operating companies take out long-term loans from Walmart subsidiaries in tax havens and thereby generates tax-deductible interest payments to those subsidiaries. This allows Walmart to dodge taxes in countries where it earns profits by simply paying interest to itself in places where the interest will be taxed lightly or not at all. This is known as earnings stripping.

The most compelling evidence for this intercompany tax avoidance scheme is seen in Walmart’s UK retailer – Asda.

Analysis of financial statements issued by Asda subsidiaries demonstrates that Walmart has avoided $850 million in UK taxes from 2004 through 2014 by transferring £2.06 billion – roughly ¼ of Asda’s earnings – to Walmart subsidiaries in Luxembourg via tax-deductible interest payments.

Due to the opaque nature of Walmart’s financial transactions and use of subsidiaries in tax havens it makes it difficult to assert this is their intention as documentation is not publically available. However, previous multinationals such has Amazon and Apple have been proven to have operated under this methodology and is consistent with the interpretation that it is to avoid as much tax as possible.

Why stockpile earnings in tax havens?

In July 2011, Mike Duke – ex Walmart CEO – testified before the Senate Finance Committee in favour of a ‘territorial’ tax system that would exempt foreign earnings of US based multinationals from US income tax.

If this system were to come into effect Walmart and many other US multinationals would be able to repatriate £2.1 trillion in profits that are currently offshore and untaxable by the US.

It seems as though Walmart has been biding its time and stockpiling its low-taxed foreign earnings offshore in anticipation of the Republican tax ‘reform’ bill, which would ‘bigly’ reduce the tax rate paid on current offshore profits that have not been taxed where they were earned and exempt them from US taxation under a territorial tax system.

In this time Walmart’s offshore ‘earnings’ have more than doubled, and international spending has declined. Walmart will argue that the money has been ‘indefinitely reinvested’, but this is an outright lie. Instead of reinvesting in the stores and employees of Asda, they have been siphoning the money to Luxembourg and forcing the staff to take the burden by cutting hours and staff.

Walmart not only indirectly steals money from economies by not paying fair share of tax

Research published by Citizens UK found that companies in the UK don’t pay staff enough and therefore forcing them to rely on government assistance. ASDA, as well as other big supermarkets (Tesco, Sainsburys and Morrisons) are costing the tax payer just under £1,000,000,000 a year in tax credits paid to top-up criminally low salaries.

This system is enabled by our government because it essentially gives the green light to these supermarkets as they know they can continue to offer low wages and have them supplemented by tax payer money.

Asda argues that this state intervention allows them to keep prices low for the consumers. But, at a time when public spending is being axed and a cap being placed on public sector jobs, is it really reasonable to expect the tax payer to fit the bill for the likes of Asda to continue to make outlandish profits whilst they continue to exploit their workers?

This goes against a classic concept in economics. Adam Smith’s ‘invisible hand’ tells us that for a capitalistic economy to work, people should only work in their own interest, and he went on to stress that when people (corporations) claim to be acting in the interest of the consumer, this should be seen as a warning sign.

The whole notion of tax credits was introduced by Labour in 1997 and was to lift the low-paid out of poverty. This legislation was introduced when Britain was a staunch manufacturing nation. However, as the markets have shifted from manufacturing to a more services-based economy, the labour markets have been hollowed out. This shift has had the effect that those at the top are doing incredibly well with the stock market on a seemingly endless assent, but this funnelling of money to the top of the system has the effect of implying that the economy is excellent with record profits and soaring stock markets, while pushing more and more people into low paid, government assisted employment. One thing that can’t be stressed enough, is that the stock markets and company profits are not the bench mark for measuring how well an economy is doing.

It is easy to think that this is an accurate measurement of an economy, but these figures are only made possible by those at the base of the labour pyramid. For instance, consider a cheerleading pyramid - 3 on the bottom, 2 in the middle, and one on the top. The person on the top is supported by the two lower structures, and without them, the person on top would not occupy the position on top.

The tax credit system and other benefit schemes are only viable if they are used to top up particularly low paying jobs in fairly rare circumstances. But, as low paying jobs become more prevalent, the system becomes less of a safety net, and then becomes normalised as a fact of working life.

When employers expect these handouts to their staff, they have no incentive to pay higher wages. All this is happening during a time when trade unions are being weakened and therefore strengthening employers’ ability to exploit their work forces.

This is not to say that corporations are evil and should be eradicated. They are not people and are therefore amoral. They are incentivised to make as much profit as the rules (law) will allow them to make. It’s our governments that enable this behaviour and while I, and many others think this activity is repugnant, it’s irrelevant. However because companies like this have a hive-like mind, no one is responsible for their behaviour and therefore no one feels a sense of guilt.

The myth of trickledown economics

This is the ugly manifestation of a well-established falsifiable economics model – trickledown economics.

This economic theory massively favours the wealthy by catering to their every need and allowing them huge tax breaks and other benefits. This, in turn, is theorised to ‘trickledown’ onto everyone else in the economy. But this has been proven time and time again not to work and demonstrates a strong positive correlation between trickledown economics and reduced growth, and instead finding that higher taxes on the wealthy is linked to economic growth.

If trickledown economics was working, ASDA wouldn’t force its staff to rely on government assistance, and the previously outlined stockpiles of cash in tax havens would be trickling down on us all.

Instead, we are shamed into relying on government programs, even when we have a job.

Capitalism is based on free-market forces, but in a world where our citizens are forced to rely on the state while multinational corporations bleed dry our economies by extracting billions, can we honestly say we are capitalists?

There is a two-tier economic system in play, in which the majority of us are under socialist rule with very little state assistance as there are scarce resources, and the minority are enjoying the fruits of capitalism.

If you are wondering why our beloved ‘free press’ isn’t reporting any of this, it’s because they (‘mostly’ right wing press) use the similar loopholes to avoid paying taxes. They can’t point the finger without turning themselves in. It’s not journalists that are guilty (I hope), but rather the media barons that own the paper that would likely lift any story that could cause a stir. This would also explain the predisposition of many outlets favouring Brexit, because the EU is enacting an ‘Anti Tax Avoidance Directive’ that comes into force in 2019, which, as pointed out by a savvy twitter user, coincides with the time frame of the UK leaving the EU.

Contrary to popular opinion, Brexit does not mean Brexit, and we should be sceptical of those who stand to benefit from lack of EU oversight.

When the Conservative government says we have no money, they’re right. But, the reason we skint as a country is because our hard earned cash that is being spent on everyday essentials is being siphoned to tax havens and collecting dust until a corporate friendly government is sat in the oval office that will reward their criminal behaviour with further tax breaks on foreign earnings.

#Brexit