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Aggressive tax avoidance schemes might make financial sense but for a growing number of consumers, they’re simply not cricket.

When does aggressive tax avoidance become an ethical issue for business? This is one of the more interesting questions raised by the recent release of the Paradise Papers. The mainstream media focus of the papers has been on the tax affairs of a number of celebrities who have been revealed to be what might charitably be described as somewhat over-enthusiastic when it comes to looking at ways of reducing their tax bills.

Yet while it has been fun watching the likes of Lewis Hamilton and Bono squirm these past few months, the real story for us has been what big business has been doing. And when it comes to aggressive tax avoidance, it would appear that Nike really is setting the pace (in what, admittedly, is a highly competitive field).

These past few years, Nike has created a complex web of businesses which are spread over numerous countries. This elaborate web of subsidiary companies enables Nike to channel money through each by charging each other for property rights and other services, in order to keep tax costs down.

For example, money from a particular transaction might be funnelled through several countries and could even end up at Nike Innovative CV – a business established to replace Nike International which has no tax residence at all (yes you read that right).

It is all very confusing. For instance, the payment from a pair of Nike shoes purchased in the UK goes to Nike’s hub in the Netherlands, rather than into Nike UK Ltd. Nike’s Netherlands HQ is the first port of call for all sales made in Europe, Africa and the Middle East. 

From 2005-2014, US$ millions were sent from Holland to zero-tax state Bermuda via Nike International Ltd, which itself was registered  there and held all intellectual property rights for Nike shoes.

Using this model, Nike was able to cut its global tax rate from 34.9 per cent to just 13.2 per cent over the course of a decade according to the Paradise Papers. It’s quite remarkable really.

Let us be absolutely clear here: Nike has not broken any laws. Nor is it the only apparel business which uses practices like the above to minimise its tax bill. The point also needs to be made that it is up to national governments to address tax loopholes, and there are many who believe right wing leaning democracies such as the UK have spent too long cosying up to big business in the past few decades. If any business has the opportunity to reduce its tax burden thanks to a laissez faire regulatory environment, it can hardly be blamed for doing so.

Or can it? In an age where we as consumers are also increasingly looking at the ethical credentials of organisations which we purchase from, where do aggressive tax avoidance schemes by businesses such as Nike sit? Yes, Nike hasn’t broken any laws, but could it truly be said to be operating within the spirit of existing tax laws which are in place to ensure we all pay what might be deemed a ‘fair’ share? Is it ethical or fair for any business to go to such great lengths to minimise its tax bill in a way which ordinary citizens – and, indeed, smaller businesses – simply cannot?

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