Westfield’s Corporate Structure for Tax Avoidance in the UK by United Voice
Citation preview
1. Olympic Tax Dodging: Westfields Corporate Structure for Tax
Avoidance in the UK by United Voice
2. 2
3. And businesses who think they can carry on dodging that fair
share, they need to wake up and smell the coffee, because the
public who buy from them have had enough. DAVID CAMERON UK PRIME
MINISTER
4. United Voice - one of Australias largest unions - is
organising to win better jobs, stronger communities, a fairer
society and a sustainable future. United Voice has issued this
report after a broad and ongoing examination of Westfields global
corporate social responsibility track record. United Voice believes
that multinational companies should have a positive impact in all
of the communities in which they operate. Global trade unions,
civil society groups and governments are increasingly focused on
the issue of tax avoidance by multinational companies. Given that
Australia will chair the G20 in 2014 and that corporate tax
avoidance is on the agenda, United Voice believes that it is
crucial that Australian companies operating globally show
leadership in paying their fair share of taxes. United Voice
previously prepared a report on Westfields property tax avoidance
in the United States and has commissioned research into Westfields
tax avoidance strategies in its home country, Australia. United
Voice is pleased to work with community and union partners in the
UK to encourage Westfield to genuinely support the communities in
which it operates. Westfield must do better and pay its fair share.
Published April 2014. For more information contact:
[email protected]
5. 5 Executive Summary The age of austerity has generated a
growing outcry against multinational tax avoidance, with technology
companies like Apple and Google receiving significant attention.
This report examines the corporate structure of another global
giant - Westfield, a bricks and mortar company. By examining its
company reports, we suggest how Westfield may not be paying its
fair share of tax in the UK. Westfield is the worlds largest owner,
operator and developer of shopping centres. It has a substantial
and growing presence in the UK. In London, Westfield owns and
operates Europes two largest shopping malls, including the London
Olympics shopping centre at Stratford City. The company also has
another 2 billion in planned developments in the London area.
Westfield promotes itself as providing economic development and
urban renewal to local communities. Yet behind these claims is a
hidden story of a complex corporate structure apparently designed
to avoid UK tax payments. Previous research into the accounts of
Westfield Shoppingtowns Limited Westfields main UK subsidiary
indicated that this subsidiary paid just 464,000 in tax between
2001 and 2011 on an income of 2.7 billion. Building on this
research, this report suggests that in 2012 Westfield was able to
shift up to 75% of its profits to related parties registered
outside of the UK. A case study of Westfields Stratford City
Shopping Centre also indicates that in 2012 Europes largest
shopping centre had an effective tax rate of just 0.5%! At the
heart of this story is Westfields complex corporate structure. The
multinational has more than 150 subsidiaries registered in the UK
and an unknown number of subsidiaries registered in tax havens like
Jersey and Luxembourg.
6. 6 This complex corporate structure facilitates aggressive
tax avoidance. The use of limited partnerships helps to shift
profits to subsidiaries registered outside of the UK. In 2012, 93.7
million of Westfields reported profits were shifted offshore
through limited partnerships, where the profit was no longer
subject to UK taxation. The case study of Westfield Stratford City
Shopping Centre also helps to explain Westfields tax avoidance
strategy. This shopping centre is well-known as part of the 2012
London Olympics site. Westfield owns the centre in partnership with
two of the worlds largest pension funds. Despite having strong
responsible investment policies, these funds are a core part of the
complex corporate structure used to avoid UK tax payments. In 2012,
the Westfield Stratford City Shopping Centre made a reported profit
of 39.7 million. The subsidiaries that own it paid a total of
211,028 in tax on that profit. This equates to an effective tax
rate of 0.5%. How is this possible? Once again, Westfield appears
to have used limited partnerships to shift 99% of Stratford Citys
profits offshore. In 2012, 60.1 million went to other companies
registered in Jersey, Guernsey and Delaware, where they were no
longer subject to UK taxation. If this 60.1 million was taxed at
the current corporate tax rate of 24%, the Stratford City Shopping
Centre would have paid 14.4 million more in tax in 2012 alone.
Thats 68 times more than the shopping centre actually paid!
Previous investigations have revealed that Westfields tax avoidance
is not unique to the UK, but appears to be part of the companys
global corporate policy. In 2012, Westfield avoided an estimated
US$116.4 million (72.2 million) in US local property tax. A recent
analysis indicates Westfield is tax aggressive compared to other
Australian based corporations. The company had an estimated
effective corporate tax rate of under 4%, well below the 30%
statutory rate. When multinationals and global investors fail to
pay a fair share of taxes, communities suffer. We need to close
these legal loopholes and change the tax laws. Until that happens,
we need to pressure corporations and investors to follow the spirit
of the law. That means paying tax to support communities where
profits are made. Westfield received 200 million in taxpayer
subsidies from the Olympic Development Agency ... it would take 944
years to repay this subsidy...
7. 7
8. 8 Contents Executive Summary 5 Westfields Corporate
Structure in the UK 9 Possible Benefits of the Structure 12
Stratford City Case Study 17 Does Stratford City Pay its Fair Share
of Corporate Tax 19 Stratford City and Related Party Transactions
28 Conclusion 34 Diagrams Diagram 1: Westfield UK Corporate
Structure Diagram 2: Stratford City Shopping Centre Ownership
Stucture Diagram 3: Distribution of Profit across the Stratford
City Group Compared to Tax Paid Diagram 4: Profit/Loss, Tax Paid,
Turnover and Distributions to Related Parties Diagram 5: Related
Party Transactions across the Stratford City group of subsidiaries
Appendixes Appendix 1: Who is Westfield in the UK? 37 Appendix 2:
Westfields Jersey Subsidiaries 40 Appendix 3: Limited Partnerships
43 Appendix 4: Limited Partnerships and Profit Distribution 46
Endnotes 49 10-11 20-21 24-25 26-27 32-33
9. 9 Although Westfields UK branch only operates five shopping
centres and two development sites, it manages a corporate structure
that consists of more than 150 subsidiaries in the UK alone.1 These
subsidiaries interrelate and interact in a highly complicated way.
Additionally, the company maintains other subsidiaries in the
secrecy jurisdictions of Jersey, Luxemburg and Delaware. Many of
these tax haven based subsidiaries are ultimate parent companies of
subsidiaries operating in the UK. Although the company itself has
an extremely complex corporate structure, only one of these
subsidiaries reports having any employees Westfield Shoppingtowns,
which is responsible for the day-to-day management of Westfields UK
and Europe operations.2 While the function of some subsidiaries is
clear, for many others it is not. Moreover, the company has
established complex ownership structures which are difficult to
understand at face value. The subsidiaries can broadly be split
into the following categories (in order of prevalence): Limited
Partnerships (and companies that act as General Partners to Limited
Partnerships) Companies that invest in property through other
subsidiaries sometimes in a very indirect way Companies which exist
to hold an interest in a limited partnership in some instances this
interest is less than 1% Development companies Utilities companies,
which provide electricity or other utilities to shopping centres
Companies which manage the business of other subsidiaries
Financiers to group undertakings Holding companies Companies that
manage car parks Property Managers and Letting Agents (Westfield
Shoppingtowns is the only subsidiary in this category) The first
three categories make up more than 50% of all of Westfields
subsidiaries in the UK. Westfield currently owns its UK
subsidiaries primarily via a holding company in Australia Westfield
Holdings. Westfield Holdings in turn owns a number of subsidiaries
registered in Australia and Jersey which act as parent companies
for the remaining subsidiaries in a complex network of ownership.
The most important of these are Cavemont Pty Ltd and Westfield UK
Acquisitions (Jersey) Ltd, registered in Jersey. Westfields UK
operations are divided between these two companies. Westfields
Corporate Structure in the UK
10. 10 Diagram 1: Westfields UK Corporate Structure The
following diagram is a simplified representation of the companys
operations in the UK. It also identifies which elements of the
structure belong to which shopping centre.
11. 11
12. 12 Possible Benefits of the Structure Westfield relies
heavily on the use of limited partnerships to structure their
operations in the UK. A limited partnership requires one or more
limited partners in addition to a general partner. Limited partners
are by definition limited in their liability to the company, while
general partners shoulder the bulk of legal and financial
liability. In a legal sense, the limited partners will often
provide all of the capital needed for the operation of the
partnership, while the general partner oversees the management of
the capital.3 This is a particularly useful way for a company to
manage joint venture partnerships. Limited partnerships also offer
tax advantages, in that the partnership itself is not obliged to
pay tax. Tax is instead paid by each individual partner once
profits have been redistributed from the partnership.4 If, however,
a partner is registered in a separate jurisdiction (for instance,
in a tax haven such as Jersey), they do not usually pay tax on the
profits generated by the limited partnership within the UK (there
are exceptions for income such as rents and in some situations
where it can be shown that management was in the UK). Limited
partnerships utilised by Westfield report their taxation
obligations in the following manner: It appears that both Westfield
and their joint venture institutional investor partners have
successfully utilised these structures to channel money into
subsidiaries registered in secrecy jurisdictions such as Jersey and
Guernsey. Appendix 3 of this report demonstrates in detail the
extent to which limited partnerships have been utilised by
Westfield in the UK as well as their association with subsidiaries
registered in Jersey, Guernsey and Delaware. A couple of specific
examples here help to demonstrate this point:
13. 13 In this example, only the General Partner, Stratford
Retail Shopping Centre Investments (No. 1) General Partner Limited,
pays tax in the UK. This means that potentially only 0.5% of the
profits of this partnership are taxable in the UK.5 Example 1
Example 2 In this example, four companies registered in the UK have
an interest in this partnership, which combined equals 1.5%. These
four companies potentially pay tax in the UK; however the remaining
98.5% is held by companies registered in Jersey, which probably do
not pay tax in the UK.6 Example 3 In this example, only the General
Partner, White City Investments (No. 1) General Partner Limited, is
definitely taxable in the UK. This means that maybe only 0.5% of
the profits of this partnership are taxable. The remaining 99.5%
interest is held by a Jersey Unit Trust.7
14. 14 This report examines the distribution of profit reported
by limited partnerships owned by Westfield in the UK demonstrating:
(See Appendix 4) 75% of profits reported by these limited
partnerships in 2012 were distributed to subsidiaries registered
outside of the UK. A further 7% was distributed to other limited
partnerships registered in the UK, leaving just 18% of reported
profits distributed to companies registered and paying tax in the
UK.
15. 15 The distribution of profits to companies registered
outside of the UK suggests that these profits may not have been
taxed within the UK. If these profits were taxed at the current
corporate tax rate of 24%, Westfield would have paid an additional
22.4 million in UK tax in 2012.8 While these structures appear to
have tax advantages, they also have the additional advantage of
being difficult to trace. Through complex corporate structures,
Westfield has hidden its use of tax havens. The most recent list of
Westfield owned subsidiaries in Jersey was published in 2010. Since
then, Westfield has ceased disclosing the full list of overseas
subsidiaries. It is evident that the 2010 list does not reflect the
current state of the companys use of the Jersey tax havens, and
therefore the full extent of the companys association with secrecy
jurisdictions is unknown but may be quite extensive. Appendix 2 of
this report details 35 known subsidiaries registered in tax havens.
In February 2014, United Voice contacted the Westfield Group to ask
why the company ceased disclosing its overseas subsidiaries. The
company responded that these subsidiaries were not considered to be
material to our securityholders.9 Distribution of profits from
Westfield Limited Partnerships in 2012
16. 16 ... taxes need to be fair, as well as low, in order to
preserve the legitimacy of free markets The essential principle is
that you should normally pay tax in the country where youve earned
the revenue. Tony Abbott Prime Minister of Australia
17. 17 The diagram of the companys UK structure represented
earlier in this report has been greatly simplified and reflects
only about a third of all of Westfields subsidiaries registered in
the UK and almost none of those registered in Jersey. A map of the
complete structure would be much more convoluted, involving many
more subsidiaries and a complex network of ownership across
multiple jurisdictions. The case study of a single shopping centre
Westfield Stratford City helps to demonstrate the complexity of the
companys corporate structures. A total of 28 subsidiaries
registered in Australia, the UK, Jersey, Guernsey and the US are
involved in the ownership, management and development of Westfield
Stratford City.10 Only one of these companies Westfield
Shoppingtowns Limited reports having any employees.11 Westfield
Stratford City is a joint venture partnership between Westfield
Holdings, the Canadian Pension Plan Investment Board (CPPIB) and
the APG, a Dutch pension fund manager. APG is the wholly-owned
asset management subsidiary of ABP, one of the worlds largest
pension funds. CPPIB is also in the top 10 of global pension fund
investors and both funds have robust responsible investment
policies. CPPIB and APG each own a 25% interest in this property
and collectively own a 50% interest. The title of the land that
shopping centre occupies is registered to two subsidiaries
Stratford City Shopping Centre (No. 2) Nominee A Limited and
Stratford City Shopping Centre (No. 2) Nominee B Limited.12 These
two subsidiaries are jointly controlled by Westfield, APG and CPPIB
via the jointly owned subsidiary Stratford City JV Business Manager
Limited.13 In addition to having directors on the board of this
company, CPPIB and APG also have directors on the boards of at
least 7 other companies that are part of this complex structure.14
Diagram 2 demonstrates that this joint venture is managed primarily
through several limited partnerships, where the limited partners
are primarily registered in the secrecy jurisdictions of Jersey,
Guernsey and Delaware15 . CPPIB and APG own their interests in the
shopping centre via two mutually owned subsidiaries Canneth BM
(Shareholder) Co. Ltd registered in Jersey and Canneth Limited
Partnership Inc. registered in Guernsey. In 2012 they received
income and distributions worth 230.5 million.16 It appears that
these pension funds also avoid UK tax payments through this
structure. Westfield, as joint owner, manager and developer of the
centre, has a much more complicated relationship to the shopping
centre. Financially, its ownership of the property seems to be
managed through two Jersey Unit Trusts, however a number of
subsidiaries are also owned through the Australian-based subsidiary
Cavemont Pty Ltd. The actual development of the centre was managed
by Stratford City Developments Limited, a subsidiary of another
Jersey based subsidiary. Meanwhile, the management of the centres
physical operations is run by Westfield Shoppingtowns Limited,
which is a subsidiary of an entirely separate arm of the company
the Australian registered Westfield American Investments Pty Ltd
and relates to the rest of the shopping centre structure
principally through extracting management fees from the other
subsidiaries in the group. Stratford City Case Study ABP, with 2.8
million beneficiaries, is the pension fund for Dutch government,
public and education workers. CPPIB is a national pension plan
covering 18 million Canadians. Both funds are joint venture
partners to Stratford City.
18. 18 ...traditional defence of compliance is dead; the
distinction between evasion (illegal) and avoidance (lawful) has
dissolved in the eyes of governments, NGOs and citizens Corporate
Citizenship
19. 19 Does Stratford City Pay its Fair Share of Corporate Tax?
The impact of the corporate structure is apparent when we assess
the finances of the Stratford City group of subsidaries as a whole.
In particular, the way in which the structure may facilitate tax
avoidance becomes clearer. At first glance, the Stratford City
Shopping Centre contributed 1.3 million to tax in 2012. Overall,
the group made a combined profit of 33.4 million. This therefore
equates to an effective tax rate of around 4%. Despite this, these
first impressions are misleading primarily because of the inclusion
of Westfield Shoppingtowns into the analysis. Although Westfield
Shoppingtowns is a key part of the Stratford City group, it is also
responsible for the management of four other centres and two
development sites. Therefore, the accounts of this subsidiary do
not exclusively reflect the finances of Stratford City. If we
discount the accounts of Westfield Shoppingtowns, the discrepancy
between profits made and tax paid is even starker (see Diagram 3
below). In this instance, the group as a whole made a combined
profit of 39.7 million but paid just 211,028 in tax. This equates
to an effective tax rate of 0.5%. To truly understand how this
outcome is achieved, it is useful to look at which subsidiaries
reported a profit and which reported a loss. Diagram 3 (below)
indicates that 4 subsidiaries reported a loss of 21.4 million
combined. Just one of these subsidiaries paid tax equal to 798,
while one other received a tax rebate worth 18,568. By contrast, 9
subsidiaries reported a profit of 61.2 million combined. Of these 9
subsidiaries, just 5 paid tax worth 229,663. However, when we look
at where the profit is concentrated, we see that the subsidiaries
reporting the largest amount of profits are limited partnerships,
which combined account for 98.7% (or 60.3 million) of the groups
combined reported profits.17 As stated earlier, limited
partnerships do not themselves pay tax, since tax is calculated
once the money is redistributed to the individual partners. The
Stratford City group of subsidiaries made 39.7 million but paid
211,028 in tax, an effective tax rate of 0.5%.
20. 20 Diagram 2 It is also possible to identify which elements
of the structure belong to which shopping centre: Diagram 2:
Stratford City Shopping Centre Ownership Structure
21. 21
22. 22 Table 1: Accounts of the Stratford City Group, 2012
Subsidiary Profit Turnover Tax Paid ETR18 Stratford City
Developments -21,216,643 12,777,573 0 Stratford Utilities Limited
590,757 7,022,339 141,455 Stratford Cch Limited -132,081 4,583,696
798 Stratford City Car Park Limited -70,398 2,913,425 -18,568
Stratford City JV Business Manager Limited 58,013 64,000 1,030
Stratford City Shopping Centre (No. 2) General Partner Limited
-5,636 0 0 Stratford City Shopping Centre (No. 1) General Partner
Limited 146,170 0 50,992 Stratford Retail Shopping Centre
Investments (No. 1) General Partner Limited 557 0 18,433 Stratford
Retail Shopping Centre Investments (No. 2) General Partner Limited
1,252 0 17,753 SUBTOTAL Subsidiaries -20,628,009 27,361,033 211,893
Limited Partnerships Stratford City Shopping Centre (No. 2) Limited
Partnership 938,000 4,062,000 0 Stratford City Shopping Centre (No.
1) Limited Partnership 47,344,000 109,371,000 0 Stratford Retail
Shopping Centre Investments (No. 1) Limited Partnership 6,057,656 0
0 Stratford Retail Shopping Centre Investments (No. 2) Limited
Partnership 6,035,381 0 0 SUBTOTAL - Limited Partnerships
60,375,037 113,433,000 0 TOTAL GROUP (Ex-Shoppingtowns) 39,747,028
140,794,033 211,893 0.5% Westfield Shoppingtowns Ltd -6,393,000
172,176,000 1,078,000 TOTAL GROUP (Plus Shoppingtowns) 33,354,028
312,970,033 1,289,893 3.9%
23. 23 When we look at the structures of these limited
partnerships, we learn that 99.5% of its profits were distributed
to subsidiaries registered outside of the UK. These subsidiaries
were registered in the secrecy jurisdictions of Jersey, Guernsey
and Delaware. This suggests that these profits may not have been
taxed within the UK jurisdiction. If this amount was taxed at the
current corporate tax rate of 24%, the Stratford City shopping
centre would have paid an additional 14.4 million in tax or 68
times more than was actually paid in 2012. Table 2: Distribution of
Profits from Stratford City Limited Partnerships Subsidiary
Profit/Loss before tax Distributions to UK companies % of profit
Distributions to Tax Havens/ Other Jurisdictions % of profit
Stratford City Shopping Centre (No. 1) Limited Partnership
47,344,000 236,720 0.5% 47,107,280 99.5% Stratford City Shopping
Centre (No. 2) Limited Partnership 938,000 4,690 0.5% 933,310 99.5%
Stratford Retail Shopping Centre Investments (No. 1) Limited
Partnership 6,057,656 30,288 0.5% 6,027,368 99.5% Stratford Retail
Shopping Centre Investments (No. 2) Limited Partnership 6,035,381
30,177 0.5% 6,005,204 99.5% TOTAL 60,375,037 301,875 0.5%
60,073,162 99.5% Without this complex corporate structure, the
Stratford City shopping centre would have paid an additional 14.4
million in tax or 68 times more than was actually paid in
2012.
24. 24 Diagram 3: Distribution of Profit Across the Stratford
City Group Compared to Tax Paid
25. 25
26. 26 Diagram 4: Profit/Loss, Turnover and Distributions at
Stratford City
27. 27
28. 28 Another aspect within the accounts of Westfields
Stratford City subsidiaries which may be of interest from a tax
perspective is the disclosure of a large number of related party
transactions taking place within the group and between the group
and other related parties owned by Westfield and its joint venture
partners. Unlike most other UK-based subsidiaries owned by
Westfield, the majority of the subsidiaries examined in the
Stratford City case study disclose the details of its related party
transactions within its annual accounts. An analysis of these
disclosures reveals dozens of transactions, equalling more than
668.4 million flowing between subsidiaries and other related
parties in 2012. These transactions reflect: loans made between
related parties; management fees (paid principally to Westfield
Shoppingtowns Limited); payments for the provision of services
(e.g. from related parties that offer utilities services); and
distributions made to partners of limited partnerships. The last of
these is not technically a related party transaction and has been
recorded in Diagram 4 in orange, to demonstrate the flow of profits
from the group to limited partners registered externally to the UK.
The pink arrows indicate transactions which have been disclosed but
not in sufficient detail to understand where the money was
directed. The sums of money recorded in the accounts range from
just 1 to more than 170 million. Stratford City and Related Party
Transactions
29. 29 Example 1: Stratford Utilities Limited Two specific
examples are useful to help explain the flows of money represented
in Diagram 5. This subsidiary has a stated purpose of: the
acquisition and distribution of electricity to the tenants of the
Westfield Stratford City Shopping Centre. Amounts due from other
related parties: During the 2012 financial year, Stratford
Utilities Limited recharged energy costs to the following
subsidiaries: Stratford City Car Park Limited - 30,229 Stratford
City Developments Limited - 24,969 Stratford City Offices (No. 5)
Limited Partnership - 131,144 Stratford City Shopping Centre (No.
1) Limited Partnership - 179,618 An additional payment of 5,818 was
due from Retail Utilities Solutions Limited, the purpose of which
is not disclosed. Amounts due to other related parties At the end
of the 2012 financial year, the company owed management costs to
Westfield Shoppingtowns Limited worth 3,726. This was the balance
after the company paid management fees worth 669,976 during the
financial year. The company received a loan worth 10,000 from
Westfield UK Finance Limited. The company also owed 5,998 to
Stratford CCH Limited, the purpose of which is not disclosed.
30. 30 Example 2: Stratford City Shopping Centre (No. 1)
Limited Partnership The same mapping can be followed through for
the remaining subsidiaries, to produce diagram 5, which maps money
flows across the Stratford City group of subsidiaries. While it is
impossible to really understand the purpose and nature of these
transactions, the sheer volume of related party transactions not
only highlights the complex nature of Westfields UK group structure
but also raises some questions as to the purpose of this structure.
Accountants and economists have both pointed out the relationship
between related party transactions and tax avoidance. Chen-Kuo and
Wen-Wen state that one of the core reasons behind the development
of related party transactions as a strategic accounting method was
to help realize the minimization of overall tax burden among the
related parties. Transfer pricing between related parties
registered in different international jurisdictions is one of the
key mechanisms for this.19 Sikka and Willmott have argued that
transfer pricing practices are responsive to opportunities for
determining values in ways that are consequential for enhancing
private gains, and thereby contributing to relative social
impoverishment, by avoiding the payment of public taxes.20 A large
proportion of related party transactions appear to be undertaken by
limited partnerships. Additionally, these partnerships also
distribute profits to limited partners, as follows. The stated
purpose of this partnership is to carry on the business of directly
or indirectly maintaining and letting property for investment
purposes. The principal activity of the Partnership continued to be
the development, ownership and management of the Westfield
Stratford City Shopping Centre, London. At the end of 2012, the
Partnership was owed 2.6 million from related parties, and in turn
owed 464.6 million to related parties. The Partnership also paid
64.3 million to related parties in distributions. Amounts due from
other related parties At the end of the 2012 financial year,
Stratford CCH Limited owed the Partnership a loan worth 2,587,550
(including interest). The Partnership also owed Stratford CCH
Limited 249,840 for cooling and heating services, leaving a balance
of 2,338,310. Additional payments were due from the following
related parties, for reasons that were not disclosed: Stratford
City Car Park Limited - 79,000 Stratford City JV Business Manager
Limited - 4,000 Stratford City Offices (No. 5) Limited Partnership
- 188,000 Stratford City Shopping Centre (No. 2) Limited
Partnership - 26,000 Stratford City Shopping Centre Jersey Unit
Trust (No. 1) - 13,000 Amounts due to other related parties The
Partnership owed management fees worth 143,910,422 to Westfield
Shoppingtowns Limited The Partnership had a loan worth 170,917,142
from Canneth Limited Partnership Inc, a Guernsey based subsidiary
of CPPIB and APG. The Partnership has a loan worth 170,917,142 from
Westfield UK Finance Limited. Additional payments were due to the
following related parties, for reasons that were not disclosed: o
MH (No. 1) Limited Partnership - 6,000 o Stratford City Offices
(No. 4) Limited Partnership - 2,000 o Stratford City Shopping
Centre (No.1) General Partner Limited - 1,134,000 o Stratford
Retail Shopping Centre Investments (No. 1) General Partner Limited
- 21,000 o Stratford Retail Shopping Centre Investments (No. 2)
General Partner Limited - 21,000 o Stratford Utilities Limited -
180,000 o The Wilmslow (No. 3) Limited Partnership - 5,000
Distributions made to other related parties During the year, the
Partnership apportioned 237,000 worth of profit to Stratford City
Shopping Centre (No. 1) General Partner Limited and 47,107,000 to
Stratford Managing Trustee Limited, which then redistributed it to
Stratford City Shopping Centre Jersey Unit Trust (No. 1).
Subsequent to the end of the financial year, the Partnership
distributed profits worth 17 million to the Partners.
31. 31 There are some forms of avoidance that have become so
aggressive that I think it is right to say these raise ethical
issues, and its time to call for more responsibility and for
governments to act accordingly. David Cameron UK Prime
Minister
32. 32 Diagram 5: Related Party Transactions Across the
Stratford City Group of Subsidiaries
33. 33
34. 34 This report has investigated some of the ways that
Westfield appears to be avoiding paying its fair share of UK taxes.
Despite this, Westfield continues to present itself as a
responsible corporation that gives back to local communities. When
Westfield London opened in 2008, the company claimed to have
transformed a derelict 43-acre former railway yard in Shepherds
Bush into a genuine community hub, in the process creating more
than 8,000 full-time and part-time jobs.21 The same logic has also
convinced governments of the need to support major corporations
like Westfield through government subsidies. In 2009, Westfields
Chief Operating Officer in the UK, Peter Miller argued that UK
taxpayer money should be funnelled into supporting development
corporations as a way of increasing urban regeneration:
Regeneration schemes of the past decade in which private developers
shoulder the majority of the costs up front are no longer viable
under the current economic climate. Westfield supports a more
collaborative approach between public and private sectors which
will spread the risk and ultimately allow much needed regeneration
projects to be brought forward much more quickly than under present
circumstances. With a typical scheme generating millions of pounds
of tax revenue, it makes sense for new legislation to allow local
authorities and the Treasury to use that money to kick- start the
development which would result in wide spread benefits, not least
to the local community where such investment is so greatly needed.
22 Conclusion
35. 35 In 2011, Westfield received 200 million in taxpayer
subsidies from the Olympic Development Agency to develop
infrastructure surrounding the Stratford City Shopping Centre.23
Despite this, it would take 944 years to repay this subsidy based
on the 2012 company taxes paid on this property. At the time the
subsidy was granted, the media reported that the money was given to
Westfield in lieu of paying for infrastructure upgrades in some of
the poorest areas of Wales.24 We are left wondering whether
communities would have benefited more from an investment in
infrastructure rather than through subsidising the worlds largest
shopping centre owner. The disjuncture between Westfields words and
its actions as a corporate taxpayer is stark. As Westfield prepares
to spend 2 billion on further developments at Westfield London and
in Croydon, local and national governments should put measures in
place to make sure that Westfield, and its investment partners, are
paying a fair share of tax. UK communities should be very wary of
the public image put forward by Westfield and start to question why
a bricks and mortar development company needs so many Jersey- based
subsidiaries. Westfield also recently announced a conditional
agreement to sell its interests in 3 UK regional shopping centres
Merry Hill, Derby and Sprucefield for 597 million. Will these sales
generate UK tax revenues? Will the new owner, Intu Properties plc,
maintain a similar complex corporate structure to avoid UK tax
payments? Tax avoidance is widespread amongst UK- based companies
and encouraged by leading accountancy firms.25 As Prem Sikka has
noted: Opaque corporate structures, complex transactions, secrecy
and offshore jurisdictions have become a hallmark of tax avoidance
schemes. The UKs 100 largest companies listed on the London Stock
Exchange have more than 34,000 subsidiaries and joint ventures.
Around 8,000 of these are located in sparsely populated tax havens
that offer low tax rates or require limited disclosure to other tax
authorities. 98 of the FTSE 100 companies have a presence in tax
havens. 26 Yet, what is unique about Westfield is that a property
company is using tax avoidance practices similar to those used by
technology and financial firms. An almost impenetrable web of
complex related party transactions and limited partnerships appears
to allow the company to shift debt and profit around in order to
minimise tax payments. For many years, tax planning strategies of
this nature have flown under the radar of governments, shareholders
and the public alike. Yet, with a growing focus on corporate tax
avoidance, attitudes are rapidly changing. Speaking to the World
Economic Forum in January 2013, UK Prime Minister David Cameron
said: there are some forms of avoidance that have become so
aggressive that I think it is right to say these raise ethical
issues, and it is time to call for more responsibility and for
governments to act accordingly. Individuals and businesses must pay
their fair share. And businesses who think they can carry on
dodging that fair share, they need to wake up and smell the coffee,
because the public who buy from them have had enough. 27 In 2011,
Corporate Citizenship, a corporate consulting firm issued a report,
Tax as a Corporate Responsibility Issue, which stated that the
traditional defence of compliance is dead; the distinction between
evasion (illegal) and avoidance (lawful) has dissolved in the eyes
of governments, NGOs and citizens.28 Due to growing interest in the
issue, they have produced a 2014 report, Tax: Time for Action, to
guide companies on how to respond to the continuing debate on
corporate tax avoidance. 29 Institutional investors and other
shareholders are beginning to take notice as well.
36. 36 A recent report by Sustainalytics, a research and
analysis firm for responsible investors, stated that the global
debate is shifting and as regulators look to crack down on
corporate tax avoidance, it is in companies best interests to
proactively adopt responsible tax practices. First and foremost,
MNCs should not locate group companies in tax havens unless there
is a justification based on legitimate economic activity.30 It is
therefore surprising to find two of the largest global investors
CPPIB and APG entangled in Westfields tax avoidance practices. Both
funds have responsible investment policies that should preclude
them from these types of aggressive tax avoidance practices. CPPIB
states that: We believe that organizations that manage
Environmental, Social and Governance (ESG) factors effectively are
more likely to create sustainable value over the long-term than
those that do not. As an owner, we monitor ESG factors and actively
engage with companies to promote improved management of ESG,
ultimately leading to enhanced long-term outcomes in the companies
and assets in which 18 million CPP contributors and beneficiaries
have a stake. 31 Similarly APG states that managing pension assets
is about more than realizing financial gains and that APG is a
leader in Responsible Investment in real estate. 32 While
institutional investors such as these funds are expected to
effectively manage tax liabilities, participating in this
aggressive tax avoidance scheme is another story. It seems clear
that by any standard, the aggressive tax avoidance outlined in this
report falls far outside of what is deemed responsible practice for
long-term institutional investors. Westfield, CPPIB and APG may
well find that their participation in these schemes places them
behind the times in a world where corporate tax avoidance is
receiving increased scrutiny. Not only should companies like
Westfield adopt responsible tax practices, but CPPIB and APG and
other institutional investors must incorporate a review of tax
practices as a core part of their responsible investment policies.
Aggressive tax minimisation may generate nominally higher returns
in the short term, but undermines communities, investments and
economic interests over the long-term. Westfields tax avoidance
strategies need to be scrutinised by all of the relevant
authorities, including in the UK and Australia. Both Governments
need to follow their tough talk on tax avoidance with effective
action. Given that Australia is currently leading the G20,
Westfields global tax avoidance practices provide the Australian
Government with a home-grown example of why national and global
rules need to be changed to stop aggressive tax avoidance by
multinational corporations. A recent report by the Sydney-based
Lowy Institute discussed progress in combatting tax evasion and
avoidance.33 A key finding of the report was that, Australia should
focus on taxpayers in G20 countries disclosing more targeted
information about their tax planning strategies. Public disclosure
is a powerful tool and does not require the negotiation of
complicated international agreements. Ironically, the Lowy
Institute shares a chairman and three other board members with
Westfield. It would be encouraging if Westfield set a positive
example and improved disclosure and transparency on its own tax
planning strategies. Westfields tax avoidance practices in the UK
are not illegal, but clearly violate the spirit of the law. Global
tax rules need to be changed to create a fair system that gives
back to the communities where profits are generated. In the
meantime, corporations and institutional investors need to be held
to a higher moral standard. Westfield, and its shareholders and
investment partners, may learn that a backlash to aggressive tax
avoidance practices can create significant regulatory risk,
financial costs and reputational damage.
37. 37 Appendix 1: The Westfield Group, with 21,856 retailers
in 9.6 million square meters of retail space, owns and operates one
of the worlds largest shopping centre portfolios with 99 centres
located in Australia, New Zealand, the United States and the United
Kingdom.35 Westfield (WDC) is headquartered in Sydney and is one of
the largest entities listed on the Australian Securities Exchange.
In 2012, Westfield shopping centres had more than 1.1 billion
customer visits which generated AU$40 billion (23.7 billion) in
retail sales. Westfields global property portfolio was valued at
AU$67.8 billion (40.2 billion).36 In 2012, Westfield made a net
profit of AU$1.72 billion (1 billion) and was managing an AU$12
billion (7.1 billion) development pipeline.37 Westfield started
operating in the UK in 2000.38 Since then, Westfield claims that it
has developed one of the United Kingdoms most outstanding shopping
centre portfolios.39 Westfield currently operates five shopping
centres in the UK and has just signed a partnership agreement with
Hammerson to develop a sixth centre in Croydon. Westfields UK
portfolio currently generates income growth of 4-5%.40 Westfield
claims average retail sales for Westfield London and Stratford City
as 829 per square feet (combined).41 Centre Retailers Retail Space
(ft2 ) Customers (per year) Retail Sales (m) Joint Venture Partner
Westfield London 374 1.8 million 27.7 million 961.9 Commerz Real
(50%) Stratford City 358 1.9 million 45.9 million 940.1 APG (25%),
CPPIB (25%) Westfield Derby (Derbyshire) 231 1.1 million 25 million
Hermes (33.3%) Merry Hill (West Midlands) 294 1.7 million 23
million QIC (66.7%) Sprucefield (Northern Ireland) 5 231,166 None
Westfield Croydon Hammerson (50%) Westfield Bradford 301,875 0.5%
99.5% DEVELOPMENT DEVELOPMENT Who is Westfield in the UK?
38. 38 The Westfield brand in the UK Westfield has developed
the two largest shopping centres in Europe Westfield London and
Westfield Stratford City. Combined, these two centres attract
around 70 million shoppers each year, generating close to 2 billion
in sales. The company claims to develop shopping centres that are
highly productive, offer strong franchise value, and attract the
worlds leading retail brands. Westfield believes that its centres
are an essential part of the communitys social and economic
fabric.42 Since 2000, Westfield claims to have invested over 5.2bn
and created over 25,000 permanent jobs in the UK.43 Westfield has
built its brand in the UK partially on the basis of its capacity to
impact on the lives of local communities through economic
development and urban regeneration. Its Westfield London site,
opened in 2008, was said to have transformed a derelict 43-acre
former railway yard in Shepherds Bush into a genuine community hub,
in the process creating more than 8,000 full-time and part-time
jobs.44 A similar message was delivered around Westfield Stratford
City, at the London Olympics site. Most recently, Westfield has
joined in partnership with Hammerson to form the Croydon
Partnership which they claim will transform Croydons two main
shopping centres Whitgift and Centrale into a retail and leisure
destination which will reposition Croydon as the best place to
shop, work and live in South London. It sees this as an opportunity
to deliver growth, create thousands of jobs and breathe new life
into long neglected corners of South London. The plan involved 1
billion worth of redevelopment, which is said to include the
creation of 5,000 new jobs. Construction is not scheduled to begin
until 2015 and completion is forecast for 2017. 44
39. 39 Westfield London Westfield London changed the face of
shopping in the capital.46 In 2011, Westfield London was ranked
number one shopping centre in the UK by Javelin Group.47 This
centre was used as a case study in the 2011 sustainability report
to prove the impact that Westfield has had on economic development
and urban regeneration in the UK. Westfield London was said to have
transformed a derelict 43-acre former railway yard in Shepherds
Bush into a genuine community hub which today attracts well over 26
million visits each year. Westfield claims to have engaged in
extensive community consultation over the development. The outcome
has been a world class retail and leisure site that has transformed
the local environment by providing West London with a new community
hub that integrates efficiently with its surrounds and provides the
trade area with retail, leisure and community facilities and
services. Westfield also claims that the new development stimulated
the local economy through job creation. During the projects
construction more than 10,000 jobs were created and more than 8,000
full-time and part-time jobs on completion.48 Westfield Stratford
City, London Westfield Stratford City is Europes largest urban
shopping centre.49 Westfield has hailed the site as an example of
its commitment to urban regeneration and economic development. The
project is said to have transformed a former industrial site into a
community hub. Although the site benefited in the short term from
the influx of visitors during 2012 Olympics, the development of
this area however, was always with a long-term focus well beyond
the Olympic Games, and it has resulted in many positive economic
impacts that will have a lasting legacy for the local region. Once
again, community consultation was said to be a key part of the
development process. Westfield also claims the project benefited
the community through job creation: Around 27,000 construction jobs
were created during the build of Westfield Stratford City with
approximately 10% of the workforce comprised of Newham residents.
On completion of Westfield Stratford City up to 10,000 permanent
jobs were provided in retail, hotels and leisure with over 40% of
new workers living in the local host borough area and over 2,600 in
Newham alone. At least 2,000 of these roles went to long-term local
unemployed people. Croydon Partnership Westfield has joined in
partnership with Hammersons to form the Croydon Partnership which
it claim will transform Croydons two main shopping centres Whitgift
and Centrale into a retail and leisure destination which will
reposition Croydon as the best place to shop, work and live in
South London. It sees this as an opportunity to deliver growth,
create thousands of jobs and breathe new life into long neglected
corners of South London. The plan involved 1 billion worth of
redevelopment, which is said to include the creation of 5,000 new
jobs. Construction is not scheduled to begin until 2015 and
completion is forecast for 2017.50 Recent media has heralded the
role that Westfield is currently playing in redeveloping some of
the most blighted areas of London. A recent article in The
Australian argued in relation to the Croydon development that
Westfield will lead the transformation of this concrete and
soul-less grime into a shiny, sparkling, vibrant destination of
2018.51 Westfield Bradford Westfield has owned land in the West
Yorkshire city of Bradford since 2004, but has consistently failed
to develop this site into a shopping centre, despite receiving
planning approvals from the local government. The pre-existing
structures at the site were demolished between 2004 and 2006, but
the site has remained empty since then. Westfield cited a lack of
anchor tenants as causing the delay. The delays caused widespread
anger amongst the residents of Bradford, leading to a protest
movement called Occupy Westfield, which occupied the site for a
period of some weeks in mid-2012. At the end of 2012, Westfield
sold the site to Meyer Bergman, while retaining the right to the
development. Construction on the centre began in December 2013. It
appears Westfield will also retain management rights of the centre
once it is constructed.
49. 49 Endnotes 1. This report has relied on detailed mapping
of Westfields corporate structure utilising a combination of the
online corporate database provided by DueDil and company reports
requested from Companies House. The complexity of Westfields UK
structure, the companys extensive use of subsidiaries in secrecy
jurisdictions such as Jersey and the limited disclosure that
Westfield provides shareholders with regards to their subsidiary
holdings means that a complete map of the company has not been
possible. The information presented here is based where possible on
information provided within the company reports themselves and is
correct to the best of our knowledge. In March 2014, after research
for this report was largely completed, Westfield announced a
conditional agreement to sell 3 UK regional shopping centres -
Merry Hill, Derby and Sprucefield - for 597 million. 2. Westfield
Shoppingtowns employed a total of 591 employees in 2012. See
Westfield Shoppingtowns Limited, Report and Financial Statements,
31 December 2012, p.16. 3. See Companies House, Limited
Partnerships: http://www.companieshouse.gov.uk/about/gbhtml/gpo2.
shtml. Accessed 12 March 2014. Limited Partnerships and Limited
Liability Partnerships: https://www.gov.
uk/business-legal-structures/limited-partnership-and-limited-liability-partnership.
Accessed 12 March 2014. 4. See Limited Partnerships, HM Revenue and
Customs: http://www.hmrc.gov.uk/manuals/cgmanual/cg27020. htm.
Accessed 12 March 2014. 5. Stratford Retail Shopping Centre
Investments (No. 1) General Partner Limited, Report and Financial
Statements, 31 December 2012. 6. MH (No. 1) General Partner
Limited, Report and Financial Statements, 31 December 2012. 7.
White City Investments (No. 1) General Partner Limited, Report and
Financial Statements, 31 December 2012. 8. The 75% of profits made
by limited partnerships and distributed to subsidiaries registered
outside the UK comes to a total of 93.7 million in 2012. The amount
that would have been paid had these profits been distributed to
companies registered in the UK is found by applying the current
corporate tax rate of 24%. 9. Correspondence between United Voice
National President Michael Crosby and Simon Tuxen, Westfield Group
Company Secretary, 21 February 2014. 10. This case study is based
on an assessment of the 2012 financial accounts of twenty-eight
subsidiaries directly related to the operation of Stratford City
Shopping Centre, as well as numerous other subsidiaries which
interact with these subsidiaries. The ownership structure is
represented on the following page. 11. Westfield Shoppingtowns
employed a total of 591 employees in 2012. See Westfield
Shoppingtowns Limited, Report and Financial Statements, 31 December
2012, p.16. 12. Land Title for Westfield Stratford City, Montfichet
Road, London (E20 1EJ). Title number EGL557876, Land Registry,
Telford Office. 13. Stratford City Shopping Centre (No. 2) Nominee
A Limited, Report and Financial Statements, 31 December 2012.
Stratford City Shopping Centre (No. 2) Nominee B Limited, Report
and Financial Statements, 31 December 2012. Stratford City JV
Business Manager Limited, Report and Financial Statements, 31
December 2012.
50. 50 14. These companies are: Stratford City Shopping Centre
(No. 1) General Partner Limited; Stratford City Shopping Centre
(No. 2) General Partner Limited; Stratford City Car Park Ltd;
Stratford CCH Limited; Stratford Utilities Limited; Stratford
Retail Shopping Centre Investments (No. 1) General Partner Limited;
and Stratford Retail Shopping Centre Investments (No. 2) General
Partner Limited. Directors are listed in the Report and Financial
Statements, 31 December 2012, for each of these companies and
include at least one senior employee of CPPIB and APG. 15.
Stratford City Shopping Centre (No. 1) General Partner Limited,
Report and Financial Statements, 31 December 2012. Stratford City
Shopping Centre (No. 2) General Partner Limited, Report and
Financial Statements, 31 December 2012. Stratford Retail Shopping
Centre Investments (No. 1) General Partner Limited, Report and
Financial Statements, 31 December 2012. Stratford Retail Shopping
Centre Investments (No. 2) General Partner Limited, Report and
Financial Statements, 31 December 2012. 16. Canneth BM
(Shareholder) Co. Limited, Annual Return, 1 January 2013, Jersey
Registry of Companies. Distributions are reported in the accounts
of limited partnerships as per the previous footnote. 17. This
figure has been calculated by aggregating the accounts of all
subsidiaries reporting a profit (and removing the accounts of those
reporting a loss), which comes to a total combined profit of $61.2
million. The $60.4 million in profit reported by limited
partnerships represents a share of 98.7%. 18. Effective Tax Rate
(ETR) is here calculated by taking tax paid as a percentage of
reported profit. 19. Lee Chen-Kuo, and Chuang Wen-Wen, Study on the
Motives of Tax Avoidance and the Coping Strategies in the Transfer
Pricing of Transnational Corporations, Journal of American Academy
of Business, Cambridge, Vol. 12, No. 1 (2007), pp.154-160. 20. Prem
Sikka and Hugh Willmott, The Dark Side of Transfer Pricing: Its
role in tax avoidance and wealth retentiveness, Critical
Perspectives on Accounting, Vol. 21, No. 4, (2010), pp.342-356 21.
http://westfield2011.sustainability-report.com.au/development-westfield-london
22. BCSC, Mps Call For Local Government Bonds To Fund Regeneration
Projects And Help During Recession 30 June 2009
http://www.bcsc.org.uk/news_art.asp?news_id=427. Accessed 12 March
2014. 23. Jonathan Prynn, Westfield given 200m to help build roads
around mall, London Evening Standard, 16 September 2011.
http://www.standard.co.uk/news/westfield-given-200m-to-help-build-roads-around-
mall-6444220.html. Accessed 12 March 2014. 24. Wales has lost out
over 200m Olympic grant for London shopping mall, Wales Online, 21
September 2011,
http://www.walesonline.co.uk/news/wales-news/wales-lost-out-over-200m-1811754.
Accessed 12 March 2014. 25. Simon Bowen, PwC created extraordinary
structure to avoid tax on UK properties, say MPs, The Guardian, 26
April 2013. 26. Prem Sikka, The Tax Avoidance Industry, Radical
Statistics, Issue 107, (2012), pp.15-30 27. David Cameron, Prime
Minister David Camerons speech to the World Economic Forum in
Davos, 24 January 2013.
https://www.gov.uk/government/speeches/prime-minister-david-camerons-speech-to-the-
world-economic-forum-in-davos, Accessed 7 April 2014. 28. Tuffrey,
Mike, Truesdale, Peter and Hardyment, Richard, Tax as a Corporate
Responsibility Issue, Corporate Citizenship, May 2011. 29.
http://www.corporate-citizenship.com/our-insights/tax-time-for-action/
Accessed 18 March 2014. 30. Sustainalytics, Its Time to Call For
More Responsibility Multi-National Corporations and Tax
Transparency: Issues for Responsible Investors, June 2013, p.5 31.
http://www.cppib.com/en/how-we-invest/responsible-invest-approach.html
Accessed 17 March 2014.
51. 51 32.
http://www.apg.nl/en/apg-as-asset-manager/responsible-investing
Accessed 17 March 2014. 33. The Lowy Institute, Tax,
Infrastructure, Anti-Corruption, Energy and the G20 October 2013.
http://www.
lowyinstitute.org/publications/tax-infrastructure-anti-corruption-energy-and-g20
Accessed 25 March 2014. 34. Ibid. 35.
http://corporate.westfield.com/about/ Accessed 29 October 2013. 36.
http://corporate.westfield.com/about/ Accessed 29 October 2013. All
currency conversions made via http:// www.xe.com using the exchange
rate $1 AUD = 0.59 GBP as at 29 October 2013. 37. Chairmans Review,
Westfield Group Shareholder Review, 30 April 2013.
http://corporate.westfield.com/wp-
content/uploads/2013/05/Shareholder-review-lores-FINAL.pdf 38.
http://corporate.westfield.com/properties/uk/ 39.
http://corporate.westfield.com/properties/uk/ 40. Westfield Group,
2013 Half Year Results, 29 August 2013, p. 6
http://corporate.westfield.com/wp-content/
uploads/2013/08/WDC_Results_Presentation-290813.pdf 41. Westfield
Group, 2013 Half Year Results, 29 August 2013, p. 8
http://corporate.westfield.com/wp-content/
uploads/2013/08/WDC_Results_Presentation-290813.pdf 42.
http://thecroydonpartnership.com/ 43.
http://thecroydonpartnership.com/ 44.
http://westfield2011.sustainability-report.com.au/development-westfield-london
45. http://thecroydonpartnership.com/ 46.
http://corporate.westfield.com/properties/uk/ 47.
http://corporate.westfield.com/properties/uk/ 48.
http://westfield2011.sustainability-report.com.au/development-westfield-london
49. http://corporate.westfield.com/properties/uk/ 50.
http://thecroydonpartnership.com/ 51.
http://www.theaustralian.com.au/business/property/buoyant-westfield-gives-london-a-new-lease-on-life/
story-fn9656lz-1226720479091