Asda and Walmart’s royalties

Posted on October 8 2010

Asda has settled a £115m dispute with HM Revenue & Customs after the supermarket chain claimed tax deductions on excessive royalties paid to its parent Wal-Mart.

It’s the standard transfer pricing dispute these days.

And one has to wonder — what royalties was Asda paying for?

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3 Responses

Deeply Depressed says:

October 8 2010 at 12:45 pm

From FT.com, which explains a little more:

Asda, the British arm of Walmart, received a Â£115m ($183m) rebate from the US retailing group last year, boosting its profit but lifting its tax bill, according to accounts filed with Companies House.

The report and accounts for Asda Group Limited show that it received a refund on the royalty it pays to Walmart, for the know-how provided and shared by the world’s biggest grocer by sales, of Â£114.9m.

“These changes included revisions to royalties charged in previous years, which has resulted in the company recognising a reduction of royalties for prior years of Â£114.9m in these financial statements, and accordingly a net increase in the tax liability and tax charge,” Asda said in the accounts.

It said the royalty charge was a tax-allowable expense to Asda, and an equal and opposite taxable income to Walmart, and therefore was tax neutral across the Walmart group.

It added that the revision to the royalty payment was one-off in nature and was not expected to recur. The underlying royalty payments made to Walmart, excluding the refund, rose by Â£46m, the accounts said.

The refund helped lift Asda’s pre-tax profits more than 50 per cent, from Â£520.4m to Â£798.7m. They were also boosted by the absence of a charge related to stock options the year earlier. Asda said that, excluding these two items, profits rose ahead of sales.

The tax charge rose from Â£111.6m to Â£148.5m. Profit after tax rose from Â£627.2m to Â£650.2m. The accounts also showed that a dividend of Â£230m was paid to the group’s UK parent. A Â£100m dividend went to Walmart.

Implying an effective tax rate of 18.5%, or am I misreading this?
Richard Murphy says:

October 8 2010 at 3:23 pm

@Deeply Depressed

You’re right

18.5%

How?

Good question
There is more than one way to reduce a deficit… « The Hope and the Glory says:

October 18 2010 at 11:00 pm

[…] Asda campaigned against a crackdown on a tax loophole allowing builders to be “self-employed” while working for one company (here), paid some of their top earners early to allow them to avoid the 50% tax rate (here), paid Â£115m to the authorities after over-paying royalties to Wal-Mart (here). It appears that Asda pays tax around the 18% mark (here). […]