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When protest group UK Uncut occupied luxury department store Fortnum & Mason in March and demanded its parent company stop avoiding tax, finance directors everywhere must have slept a little less soundly. The sit-in was the latest escalation of a growing public outcry against tax avoidance - where companies use legal means to cut down the amount of tax they pay, often by locating their headquarters in countries with tax regimes far more lax than the UK鈥檚. The protest followed an announcement three days earlier by the chancellor, who said in the Budget that he would squeeze an extra 拢1bn for the public purse by getting tougher on tax avoidance.

All this would suggest that companies - including the many construction firms - that make use of overseas tax havens should be planning a hasty exit. But in reality, the future of such practices looks far more complex. The chancellor鈥檚 policy was targeted more at UK-based 鈥渁voidance鈥� tactics, such as 鈥渄isguised remuneration鈥�, which involves highly paid employees being offered tax-free loans that are never repaid. The companies often do this through offshore companies.

As far as tax havens go, the Budget was far more ambiguous: on the one hand, a reduction in corporation tax in the UK aims to tempt firms home; on the other, regulatory changes will allow firms to shift profits from low-tax countries into Britain without having to pay UK tax on them at all - although there will be a crackdown on 鈥渄isguised remuneration鈥�, where firms can use offshore havens to pay staff in the UK, thereby avoiding tax. So the question facing businesses with operations in these regions is a tough one: should they stay or should they go?

Reasons to stay away 鈥�

A high proportion of construction companies, like their counterparts in other sectors, have subsidiaries in 鈥渢ax havens鈥� across the globe. Paying as little tax as you can has historically - and fairly obviously - been seen as eminently sensible from a shareholders鈥� point of view, and the companies themselves will often argue that these arrangements do not count as avoidance schemes.

Tax havens are scattered across the globe (see box overleaf). The advantages of using them are clear. John Christensen, director at the Tax Justice Network, says one of the many ways companies use branches set up in these areas is for 鈥減rofit shifting鈥�: moving cash from one side of the world to another, where taxes are lower. He says: 鈥淟et鈥檚 say a firm is doing a giant project in China, and this project is potentially very profitable but they don鈥檛 want to pay the Chinese tax. They can take money out of the Chinese business and give it to a subsidiary in the British Virgin Islands, calling it 鈥檓anagement fees鈥�.鈥� He argues that it鈥檚 difficult to prove what these 鈥渕anagement fees鈥� actually are, so money is squirreled away, untaxed, elsewhere in the corporate group.

Another way many firms use the havens to save money is to move their headquarters - or at least a holding company - to somewhere like Switzerland, which offers lower corporation tax rates. 好色先生TV materials firm, Wolseley, announced in September last year that it would move there, saving an estimated 拢23m per year.

Why the British Virgin Islands and why Guernsey? The answer in most cases is tax avoidance

John Christensen, Tax Justice Network

Aside from saving money, another motive for setting up operations in these areas is privacy, or as campaigners see it, secrecy. In the British Virgin Islands, taxes are almost non-existent and, in addition, companies don鈥檛 have to file financial information as they do to Companies House in the UK. 鈥淚t may be to make it harder to sue them in the courts,鈥� adds Nicholas Shaxson, author of tax-haven book, Treasure Islands.

On top of these traditional advantages, and despite the headline crackdown on tax avoidance in the Budget, other regulatory changes announced at the same time will allow firms to bring profits from low-tax countries into Britain without having to pay UK tax on them. There will be an opt-in exemption from corporation tax on profits of foreign branches of UK companies, so it will be possible to bring profits back to this country without them being taxed at UK rates. This means, for example, a subsidiary based in Ireland would pay just the 12.5% tax applicable in that country.

鈥� vs arguments for coming home

Since it was formed in October last year, UK Uncut has occupied high street branches of Vodafone, Boots and Topshop, protesting against offshore tax avoidance. After it closed down Vodafone shops across the UK on 30 October, accusing the government of letting the company off a 拢6bn tax bill, 44% of the public viewed the phone company more negatively, according to a survey by magazine PR Week.

Most construction firms are lower profile. But the reputational risk of holding more exotic branches is clearly growing as campaigners question why they are there. Christensen says: 鈥淲hy the British Virgin Islands and why Guernsey? The answer in most cases is tax avoidance鈥�.

The industry could also be biting the very hand that feeds it, Christensen argues. Despite cutbacks, the government is still its best client. But the erosion of its tax base by avoidance could mean fewer Crossrails and Olympic parks over the next century.

This is a point clearly acknowledged by the government, which is attempting to make the UK a more attractive place from

which to run a business. Osborne announced in the Budget that the main rate of corporation tax would be reduced by 2% to 26% from April, to fall to 25% from 1 April 2012, then 24% from 1 April 2013 and 23% from 1 April 2014. This would then be the lowest corporation tax rate among the G7 industrialised countries.

But the question that remains is whether this will be enough to sway the balance for firms that are attracted by the perks of overseas tax regimes - and to stop others following Wolseley鈥檚 lead.