Unitary taxation, Barclays and Africa

I just read the Tax Justice Network briefing which is explained in Richard Murphy’s blog title “Barclays and HSBC make the case for unitary tax in the UK – because we’d have collected £2.6 billion more in 4 years.” Now I haven’t checked out the UK figures at all, but the inclusion of Barclays piqued my interest, because by some measures it has a bigger operation in Africa than it does in the UK.

Unitary taxation makes me nervous, because while the idea is to draw the tax base away from tax havens and towards economic substance, I worry that under most formulae – certainly those acceptable to the G20 – it may also suck the tax base away from developing countries.

The segmental analysis in Barclay’s accounts means that it’s possible to conduct a hypothetical case study to help answer this: would Africa be better or worse off under a simple unitary tax formula as compared to the current system?

I’ve quickly cobbled together a spreadsheet to do that for the last three years. I reproduced the TJN figures to make sure it’s comparable. I couldn’t find a tax figure for Africa, but that’s fine, the best comparison is anyway the tax base, that is, the pre-tax profits. So I applied the same two-factor formula as the TJN report proposes, which divides up the group profits on the basis of staff numbers and turnover. TJN wanted to use fixed assets as a third factor well, but couldn’t find any data. I’ve had a go at it, by using the number of distribution points (branches and sales centres), although this doesn’t change the overall distribution very much.

The result is interesting. When the group as a whole is profitable, Africa does better from this simple unitary approach than it does from the status quo. But because the African operations are not subject to the same shocks as other parts of the business have been, in 2012 Africa is much more profitable than the group overall, and so it does a lot worse under the unitary approach that takes the overall group profits as its starting point. The net effect of the unitary approach over three years is still positive, though: the African tax base is £2.9bn-£3.3bn as compared to £2.0bn under the status quo.

Link to Google spreadsheet

There are of course caveats. The staffing and profit figures I used are for the Africa segment, which doesn’t quite include all the African operations (though the turnover figure does). According to the ActionAid tax haven tracker, Barclays has six subsidiaries in the tax haven of Mauritius, which might distort the Africa figures.

Most importantly, though, Barclays is a big service provider in Africa. It has a lot of sales, a lot of staff, and a lot of branches in Africa. So it’s not a typical case study. I don’t think Africa would do so well out of unitary taxation of a company that was primarily extracting minerals or growing agricultural commodities for export.


  1. Maybe with the miners, material quantity could be used to refine the “employee number” bit of the formula. Like say one of those “the higher of …” type clauses.

    It’s nice and solidly quantitative, these companies know this data I guess.

  2. It does look as though the Africa profit would rise if UT applied because of the relatively high number of employees: there are almost as many employees in Africa as in the UK, though sales are much smaller.

    The implication is that UT values the contribution of all employees equally, even though their contribution to sales will vary slightly. Should an employee in Africa be ascribed as much profit under UT as one in the UK? Now there’s an interesting question, that I don’t think has one good answer.

    I notice that the UT profit is about double the actual PBT shown in 2010, going from 15% of sales to 33%. Being an inveterate tinkerer with spreadsheets, I wonder whether one could increase the number of employees in Africa such that the profit ascribed to Africa under UT would exceed the sales actually recorded there…? If so, is that perhaps a weakness of the UT formula? Or is this just an extreme consequence that would never actually arise in practice?

    1. Hi Andrew, you’re right about employees. If I’d had the data, for the labour side I would have used an average of the share of employee numbers and the share of employee costs, which is I think the EU proposal.

  3. Martin, you said you are nervous about the tax base shifting from developing countries under unitary taxation. I was wondering if you know of anybody who has seriously tried to predict the behavioural responses, by business, that might occur under UT?

    My thinking is that where employee numbers and capital are used for weighting, behavioural shifts from UT will reward low CT jurisdictions with higher employment and influx of capital.

    This would incentivise governments to cut corporation tax. Which seems rather at odds with the aims of those proposing it.

    1. Hi Ben this is an interesting point! The folks at http://www.ictd.ac are including some impact modelling in their UT research, but I think they’re still at the stage of static modelling, whereas you’re right there would be dynamic effects too. I’m sure someone has looked at this in the US, although what I mainly remember about that is that tax competition has taken the form of competition over different formulae. Whether that means it’s actively created double non-taxation, I’m not sure.

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