2011 March » Tax Research UK

HMRC gives in again – this time to AstraZeneca

Tax avoidance, Transfer Pricing 10 Responses »

Mar 292011

AstraZeneca has settled a long-running tax dispute in a deal which sees HM Revenue & Customs refund tax payments that will now go to America instead.

The pharmaceutical company announced on Monday morning that US and UK tax authorities have reached an agreement over where it declares certain profits. The dispute over so-called “transfer pricing” dates back to 2002, and was the most significant of AstraZeneca’s ongoing arguments with tax authorities.Under the agreement, AstraZeneca will pay out a total of $1.1bn (£689m) in taxes, substantially less than it had budgeted for. This means the company can unlock some of its outstanding tax provisions, increasing its earnings this year by $500m and raising its profit targets by almost 7%.

Its effective tax rate will also be slashed from 27% to 21%.

The deal means that AstraZeneca will receive tax refunds in several other countries, as profits are booked in the US instead. A spokeswoman confirmed that HM Revenue & Customs will hand back an undisclosed tax payment, which will then be passed on to America’s Internal Revenue Service (IRS). She declined to say how much this would be, but insisted it was less than the headline figure of $1.1bn.

Throughout this period AstraZeneca was, of course, an active tax lobbyist. The AstraZeneca FD Jon Symonds, since 2007 with Goldman Sachs, did for example whilst at AstraZeneca chair the 100 Group of FTSE FDs. And just by chance whilst he was in that role he ensured that the FTSE 100 gave £5 million to fund the Oxford Centre for the Non-Taxation of Business. This was taken at the launch event:

As Oxford noted:

At the launch reception, from left to right: Jon Symons, Chair of The Hundred Group; Dave Hartnett, Director General HMRC; Judith Freedman, Professor of Taxation Law, University of Oxford; Chris Wales, Goldman Sachs; Colin Mayer, Professor of Management Studies, Said Business School. (Photograph by Greg Smolonski).

Or as Accountancy Age put it:

The great and good of the tax world gathered to listen to Hundred Group chairman Jon Symonds and HMRC director general Dave Hartnett share a platform with a handful of handpicked and distinguished academics.

The exchange was mostly amicable ¬? Symonds and Hartnett are, after all, highly professional, polished and have worked on too many committees together to be anything other than cordial.

And yet the question remains – are such links appropriate when there is so much tax in dispute? I’m not sure. And can a company in such dispute sit on committees setting tax policy? Again, I’m not sure.

PS Accountancy Age are slightly incorrect in their reporting. Someone called Murphy asked some awkward questions at the same event, and for good reason, as history has proven.

Thought for the day – 2 – No banker ha been arrested for trashing the economy

Banking, Ethics 10 Responses »

Mar 292011

Think about it. More than 130 peaceful UK Uncut protestors have been arrested for sitting in Fortnums – when the police agreed in advance they would not be because they’d been peaceful and done no harm. And at after the police had recognised, on film, that the anarchists outside were wholly unrelated to UK Uncut – and that UK Uncut protestors needed protection form then as much as anyone else did.

But not a single banker has been arrested for trashing the economy.

They could be. There is a criminal offence of “fraudulent trading” contrary to s993 Companies Act 2006. This occurs where a person (usually a director) is “knowingly party” to the business of a company being carried on “with intent to defraud creditors” or “for any fraudulent purpose”. Fraudulent trading necessarily involves dishonesty. The maximum penalty for fraudulent trading is 10 years imprisonment.

Our main banks were, we now know, known to be insolvent in 2008. Their auditors had to seek government assurance that there would be a bail out to ensure they could sign off the accounts as going concerns. They have admitted this in the House of Lords.

Before that assurance was given the banks had the liabilities about which the auditors sought assurance. They were therefore trading during that period knowing they could not meet their obligations. That resulted in their creditors being defrauded – we paid the bill as a country and the government was undoubtedly a creditor at the time. The government could rightly bring the charge against the directors involved, in my opinion.

But they have chosen not to do so. Why?

Thoughts for the day – 1 – The Queen says there is a right to non-violent protest

Ethics 5 Responses »

Mar 292011

George Monbiot, in the Guardian today:

It could have been worse: at least the police didn’t try to kettle half a million people. But as footage obtained by the Guardian from the great march on Saturday shows, the glorious tradition of impartial policing and respect for peaceful protest remain undimmed. The film shows senior police officers assuring members of UK Uncut who had peacefully occupied Fortnum & Mason that they would not be confused with the rioters outside, and would be allowed to go home if they left the store. They did so, and were penned, handcuffed, thrown into vans, dumped in police cells and, in some cases, left there for 24 hours.

Isn’t all that supposed to have stopped? Haven’t we entered a new era of freedom in which the government, as it has long promised, now defends“the hard-won liberties that we in Britain hold so dear”? No.

In May 2010, after becoming deputy prime minister, Nick Clegg pledged that the government would “repeal all of the intrusive and unnecessary laws that inhibit your freedom” and “remove limits on the rights to peaceful protest.” The Queen’s speech firmed up the commitment by promising “the restoration of rights to non-violent protest”. So how did this grand vision become the limp rag of a bill now before parliament?

Because Clegg lied George. That’s why.

UK Uncut were doing what the Queen said they should be able to do. They protested, non-violently. Those being violent outside should have been arrested, of course. Those who caused criminal damage should face the law. But those peacefully inside Fortnums – and the police are on video agreeing they were peaceful – were doing what the Queen said they should be able to do.

Will a jury convict in the face of that?

If I was the CPS I’d be saying drop the charges, now.

This is why UK Uncut picked on Fortnum’s

Tax avoidance, Tax justice 6 Responses »

Mar 282011

There has been much discussion about why UK Uncut picked on Fortnum & Mason’s for action on Saturday. I’ve already said that I think that action was a mistake, but I have now seen the information considered by those who analysed the accounts of Associated British Foods to suggest that it was undertaking tax avoidance activity – which is legal, of course.

Associated British Foods plc is under the control of a company called Wittington Investments Ltd. Its accounts to 2009 are here. Wittington also owns 100% of Fortnum & Mason’s. Wittington is in turn 79.2% owned by the Garfield Weston Foundation about which there is more information here.

The information I have been sent does, I stress, relate to ABF. The only link as far as I can see to Fortnum’s is the common control of the companies.

The alleged tax avoidance takes place through the Swiss branch of a Luxembourg partnership called ABF European Holdings & Co SNC. The partners in this structure are not yet quite clear: they may be Swiss, Irish or further Luxembourg based entities. What is clear though is that this structure is consolidated within the ABF accounts and so in turn by Wittington. What also seems likely (but is as yet unproven) is that, according to my source, they reach that destination via an Irish intermediate holding company. If so then that structure may be the way in which UK controlled foreign company is avoided – in aggregation.

The accounts of the partnership are here. I only have this one period.

As can be seen the business of the partnership is simple. It has £420 million of subscribed capital plus a little over £100 million in retained profits. It also has an interest free loan from Primark in Ireland. Primark is a part of Associated British Foods. The resulting £600 plus million of funds in the company is then lent very largely (£537 million) to the UK parent company – ABF.

On that and the other smaller loans the Luxembourg partnership generated income of £11.5 million in a three month period – annual equivalent about £39 million. Tax was paid on this at 5.3% in Luxembourg and in Switzerland (because there is a branch there too). In the period to March 2008 the tax rate would have been 30% in the UK. Extrapolating the saving comes to about £9.7 million per annum.

Of course it could be argued that this arrangement might be within UK controlled foreign company rules. Maybe it is and maybe it has been taxed under them. If so, so be it. I am sure ABF will be happy to say so – and I am more than happy for them to do so. That would seem right and proper.

But whilst this entity does look prima facie like a UK controlled foreign company to me the arrangement also looks potentially like a structure hoping to avoid those rules – and it has to be said it looks rather hard to see why else such an arrangement has been created. But I stress, I’m more than happy for a correction to be posted. All I am saying now is that this is the basis of the advice as I understand it that UK Uncut used as the basis for their action.

And I stress:

a) I am not suggesting any illegality;

b) ABF may comment as they wish here;

c) I am sure they are quite happy that advice has been secured on this arrangement;

d) I presume disclosure has been made. The question in that case is, has HMRC acted? And has it the resources to act?

Two final points. First, this is exactly the sort of offshore treasury funding operation George Osborne now wants to overtly encourage in UK companies. He would charge 5.75% on them – just a tiny fraction above what is paid here. That would make the tax lost to the UK in future a guaranteed saving for any company doing this. It shows how generous he’s being. That is itself very pertinent at this moment. How many public servants / nurses could this sum pay?

Second, the Garfield Weston Foundation is a charity. UK Uncut have been criticised for targeting a company owned by a charity. It gave away £51 million in its last accounts on its web site. But if some of that was funded by tax avoidance isn’t that appropriately an issue of concern? This foundation openly supports the Conservative Party. Should the Big Society be funded by tax avoidance? I doubt it. Others might disagree.

Others might also think UK Uncut might have been better off going for Primark – and I’d tend to agree. I’m just publishing some data – all of which is on the public record, I’d stress and suggesting how that was put together to support their claim that there was reason for targeting companies under the control of Wittington.

Government to clampdown on multinational corporation offshoring

India, Tax avoidance, Tax Havens 3 Responses »

Mar 282011

I thought this significant:

Amid mounting pressure from the Supreme Court over the issue of black money, the government is preparing to turn the heat on MNCs as efforts to bring back money stashed overseas by resident individuals have run into legal hurdles. India is set to tighten rules for multinational companies that shift hefty profits to offshore group firms to escape tax.

MNCs and transnational companies enter into a series of transactions to move funds to their arms in tax havens and other jurisdictions where the income tax rates are significantly lower than India. This is done by MNCs buying services from their arm in India at less than the market price or fair value and selling it at a higher price outside, thereby booking profits outside the country. Such ‘transfer prices’ between ‘related parties’ are used to shift profits out of India.

An internal panel, set up by the government ahead of the Budget to review the transfer pricing regulation, has recommended a more robust legal framework to end the practice of MNCs mis-pricing products and services.

Unfortunately that’s in India – not here, where George Osborne is doing the exact opposite.

Strange that, isn’t it?

UK Uncut are right in protesting – but it would have been better not to do so on Saturday

Tax justice Comments Off

Mar 282011

I’ve blogged about the enormous success of Saturday’s TUC rally. What about UK Uncut’s actions?

As I’ve said many times before, I do not speak for UK Uncut, have never been on a UK Uncut event and have no responsibility for their actions – although it seems that on occasion they have used my work, as is anyone free to do.

I approve of peaceful protest in a democracy. That includes the right to enter property when invited to do so (and storers, banks and threes do invite people onto their premises). I never condone violence. I do not condone damage to private property. And I never will.

UK Uncut chose to hold an event on Saturday. Let me be honest: I wish they hadn’t. I think that there was a sufficient event on Saturday to get all the attention that was needed: The TUC march was the main event. Nothing else was needed on Saturday. I think UK Uncut did not need to hold an event on the same day. By doing so they, unfortunately, provided opportunity for those seeking to be violent to use them as cover. That was a mistake. Those people seeking to be violent would have been out on Saturday anyway, I believe. But UK Uncut’s peaceful style of protest did not need any such association. That this has happened is to be regretted. Since the risk was foreseeable I think it was a mistake to hold the events on Saturday.

Is it wrong for UK Uncut to protest? No, of course, not. Let me give a simple example: Overall the Budget forecasts (table c.3) tax increases in revenue between 2010-11 and 2015-16 of £170 billion – up 32.4% in the period. But corporation tax goes up by just 28.8%. I will return to the data later, but if the increase in corporation tax simply matched income tax more than £5 billion extra would be collected over the next few years. And that’s not the whole story by far: corporation tax should rise significantly in this period because economic recovery is forecast and CT is a heavily cyclical tax. It’s clear that we’re not all in this together. Protest about that is legitimate, in itself.

Was Fortnum’s the right target? I have no clue. I have never looked at its accounts. I am not sure whether there is a tax issue with Associated British Foods and I was unaware of the link between the two. I have certainly not advised on any such issue.

But I think that misses the point because let’s not pretend that this issue is just about tax. UK Uncut are protesting about what is behind the decision to cut corporation tax and to provide benefits for one section of society, who are already the most privileged, over all other groups, who will suffer as a consequence.

The protest is about letting large corporations with the capacity to pay off tax.

The protest is about promoting the market at cost to society.

The protest is about the choice to not tackle the tax gap which even the government now estimate at well over £40 billion a year. I, of course, think it’s somewhat larger.

The protest is about choosing to leave money with the tax evaders and the cheats when pensioners, the young, the sick, the disabled, students, the poor, the unemployed, public servants and their dependents all suffer.

The protest is therefore about making the wrong choice.

I still think any event on Saturday by UK Uncut was a mistake.

But let us not for a moment confuse those in UK Uncut who are rightly saying that the government has made the wrong choice in an imaginative, thoughtful, peaceful, and even humorous fashion should be confused in any way with those who chose to undertake violence. They are not in any way related as the most basic understanding of their different political philosophies will make obvious.

And let me close with a final thought. John Christensen and I carried a tax Justice Network banner on the march. Shortly before it began a man wearing military style fatigues approach us, attacking us saying in typical libertarian fashion that all taxation was theft and must therefore be abolished. He had no place on that march. It was clear he had no sympathy with the protest. Why then was he there? Was he alone in wearing such an outfit which was so out of keeping with the day and expressing such sentiments that were so at keeping with the march, or was he there for another purpose? I wonder.

A new confidence in opposition to injustice.

Economics, TUC 2 Responses »

Mar 282011

There is much discussion in the press, on blogs and on Twitter about what Saturday’s TUC march and subsequent UK Uncut demonstrations, that lead to regrettable violence mean. Because I advise the TUC and other unions, because I took part in the march and because there is no doubt UK Uncut have been influenced by my work all these are issues of importance to me. That said, I’ll deal with them in turn because the events are in a very real sense unrelated.

There was a TUC march.

There were UK Uncut events.

And there was trouble caused by some anarchists.

Three distinct events.

So, let’s start with the most important and be unambiguous. Saturday was astonishingly successful. Minimum numbers present were estimated at 250,000. Maximum is suggested to be 500,000. I suspect both are right: 250,000 reached Hyde Park: 500,000 started the march and like me left before ever reaching Hyde Park.

I suspect almost all in the union movement and on the left must be delighted by this. I was delighted to walk with unions I work with – PCS and Unite. And to walk with such a wide variety of people. Fire officers. Prison officers. Midwives. Physiotherapists. A wide variety of carers. Senior HMRC staff. Other revenue staff. Council workers. Private sector workers of all sorts. And many, many more.

Yes, we were there because we are angry. And despite that the atmosphere was a celebration that we could join together to say there is an alternative – an alternative we and millions of others believe in. If you went on the march I suspect you saw not a hint of trouble anywhere. And you saw smiling police – police who know we were marching for them too, after all.

For the TUC and other unions this now opens a whole new agenda. The union movement can suddenly ask two questions.

The first is if cuts are agreed upon by the two major political parties what agenda should unions now be promoting?

The second question is what is the economic and social logic that underpins the view of those who marched, and what do they think the public sector should look like in the future?

These are critical issues I will be working on.

But the important point is that it is now entirely reasonable to think that these questions are not just theoretically interesting, they are about policy that has mass support and that might be delivered.

For that reason Saturday was really important. I think it will change the direction of political debate in tis country. I don’t claim that will be an overnight event. It may well take some time. But I think Saturday has delivered a confidence about opposition to injustice – and that’s really important.

GE Capital – $5.1bn of US profits – and not a penny of US tax to pay

Corporation Tax, Tax avoidance, USA 16 Responses »

Mar 272011

The New York Times reported on Friday:

General Electric, the nation’s largest corporation, had a very good year in 2010.

The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.

Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

How does it do that? Legally, of course, but as the NYT notes, no one lobbies for more tax breaks than GE. And it gets them.

Not in the US only either.

Which company does more than most in Europe to oppose country-by-country reporting? Why, that’s GE Capital. It’s done by Will Morris, its full time head of European tax lobbyin g. I know that’s not the title on his CV, but that’s what he does.

How does he do it? Well, he’s on the OECD working group that is currently reviewing country-by-country reporting and doing his best to oppose it.

That’s not hard for him to do. He’s head of the CBI tax committee for one thing. That adds a lot of lobbying power.

And he’s also Chair of the European Tax Policy Forum, which is described as “a registered UK charity that sponsors independent academic research into business tax issues”. Odd then that so much of the work seems to be done at my friends at the Oxford Centre for the Non-Taxation of Business.

Odd to, coming back to the OECD review of country-by-country reporting that by some strange coincidence that the job of reviewing whether country-by-country reporting might be of benefit was given to those same friends at that same Oxford centre, who have so determinedly set out with clear political intent to undermine all civil society demands for reform of accounting and transparency on tax. The latest report from the review group (published on Wednesday and which fell into my hands half an hour ago) correctly noted

The civil society campaign for some form of public disclosure of country-by-country financial information by multinational enterprises (MNEs) can be traced back almost ten years. A 2003 publication by Richard Murphy and the Association for Accountancy and Business Affairs, which had as its focus holding companies to account for their corporate social responsibility and tax payments to the countries in which they operate, proposed that the International Accounting Standards Board (IASB) should issue an International Financial Reporting Standard requiring disclosure of detailed financial information on companies’ operations by location, in order to make such reporting effectively compulsory for MNEs in about 100 countries.

Despite that, and despite the fact that I was nominated for membership of that review body at the OECD intense lobbying ensured I was excluded. I can’t say GE were behind that, but who knows?

Nor has my opinion ever been sought by that review panel. The review panel instead sought opinion from KPMG and PWC. How strange if an objective view was really being formulated. Surely you might ask the person who created the concept something about it if you were being objective? Well, not if you don’t want an objective result you wouldn’t.

GE opposes disclosure. Could it be that’s because, like their friends at Oxford, they’re really simply opposed to all corporate taxes, but would rather we didn’t know they weren’t paying? If so, why are we letting them set policy on this issue?

Isn’t it a simple fact that by their actions they’re seeking to do three things:

a) Undermine the tax revenues of elected governments, because that’s what they’re doing;

b) Increase the wealth gap, world wide, because that’s what they’re doing;

c) Ensure developing countries do not get the tax revenues they need, because that is what is happening.

It may be this is not deliberate – but if it’s happening and as a result of GE’s lobbying how could we ever believe that for sure?

All three are interesting objectives for Will Morris, but I think they are what his organisation is trying to do. They’re a challenge for Will as he’s also the Rev Will Morris, a curate at the radical parish of St Martin’s in the Fields, Trafalgar Square, London. And I still can’t see – despite the fact that I know Will and have discussed this with him often – how these positions can be reconciled. It’s beyond my understanding of the Christian faith and its message of good news for the poor that someone with that faith could do the job he does.

He’s welcome to respond here – I’ll give him his own blog to do so.

But right now it’s all too easy to see why GE is paying no tax in the US. And that’s at cost to the US, and around the world to the rest of us.

100s of thousands – and all of it peaceful

TUC Comments Off

Mar 262011

I’m on the train back from London.

After 2.5 hours spent covering a mile from the Embankment to Trafalgar Square via Whitehall I decided the chance of my part of the March for an Alternative reaching Hyde Park before nightfall was limited. By the time I left the head of the mrch had been therefore a long time – and some people had literally hardly started.

There were hundreds of thousands of people on this march.

It was universally good humoured – I was not a hint of trouble at all.

If there is any – don’t blame the TUC. This was an enormous event, scrupulously managed and with universal good will – not least from the piolice (after all, they should have every sympathy).

I hear rumour there was trouble in Oxford Street but if so they were people utterly out of sympathy with what happened today.

Today was about people making clear that they believe in society – not Cameron’s profit driven version – not Clegg’s sold out version – but one where pubic service is not for profit.

It was about people saying they value their work – and the work of othes.

About saying society will pay the price for cutting that work – a price much bigger than the supposed financial savings that will flow.

It was about saying w on’t need to cut – because closing the tax gap, creating investment and using public spending properly to create employment could prevent it.

It was about letting people know they are not alone when they think this government insane – as rational people do.

It was about confirming that there is value in life itself – not in the cash which is all the Tories can count.

And it was well worth going to know all that.