Corporate Watch have published the latest work to reveal a company using debt financing to shift all their profits out of the UK. As they note:
This is Global, the UK's biggest commercial radio company with stations including Heart, Capital and Classic FM, has not paid any UK corporation tax in the last five years, after sending more than £200 million through tax havens, an investigation by Corporate Watch, revealed in the Sunday Times today, has found. The company also owns Xfm, Choice, Gold and LBC and manages bands including The Wanted and Lawson through its Global Talent business. Its music publishing division has The Vaccines, Ellie Goulding, Corrine Bailey Rae, LMFAO and The Waterboys on its books.
As they also note:
Thanks to the revenues from its radio and other businesses, Global made an operating profit of £33 million in 2012, on a turnover of £209 million. But Corporate Watch has found that huge interest payments on loans it has taken from its owners through the Channel Islands Stock Exchange have wiped out its taxable profits in the UK.
Global's UK companies are ultimately owned and controlled by the Jersey-based company Global Radio Group Limited. The UK companies' accounts show they have borrowed £233 million from their owners at a massive 15% interest rate, with another £252 million at 10.5% from another company only described as a “connected party”.
In 2012, interest payments of £60 million on these loans helped turn the £33 million profit into a £29 million loss, leaving Global with a UK tax credit of £257,000 for the year. Previous years’ accounts also show either no tax paid or credits received. In total, more than £200 million has left the UK as interest payments to the owners since Global was founded in 2007.
And this pays, of course, because the vast majority of the proceeds appear to flow through tax havens:
Jersey does not charge companies like Global Radio Group Limited any corporation tax. The Jersey Company Registry shows Global Radio Group Limited is itself 99% owned by a British Virgin Islands-registered company called Global Radio Worldwide Limited. The BVI also has a zero corporation tax rate. The other 1% is owned from London by Ashley Tabor in a personal capacity.
Global has said:
A statement from Global in response to questions from Corporate Watch said this is all because of the “significant and legitimate investment” in the business: “once the cost of this investment is taken into account, Global has not made a taxable profit”.
Corporate Watch in response correctly note:
But high interest loans through tax havens are not the only way investors can put their money into a company. They could, for example, have invested their money as equity and received dividends based on the company’s performance. But dividends are paid after a company is taxed and so do not reduce its tax bill.
This is exactly the same point that I have made about nPower. Using debt funding money can flow, untaxed, out of the UK quite legally. We all lose as a result.
And the trick in this case is, undoubtedly, tax avoidance. Corporate Watch are right to note that:
Global’s owners can receive the interest payments tax-free because they have issued the loans as “quoted Eurobonds”. Normally, when a UK company pays interest to a non-UK company, it has to “withhold” 20% of the payments and give it to the UK tax authorities. But if the loans are issued as quoted Eurobonds on a “recognised” stock exchange, such as the Channel Islands’ or the Cayman Islands’, they benefit from an exemption that means no withholding tax is taken off.
So this is deliberate structuring to get a tax result. And I'm afraid I am quite sure the General Anti-Abuse Rule won't go near it. This is now considered 'normal practice' and the GAAR goes nowhere near that.
The result is that one company is mopping up large parts of the local radio business, and all with the help of an implicit tax subsidy - precisely because local radio stations pay their tax and those structured like Global can avoid that obligation. It's legal, no doubt. But it's not ethical. And worse it is undermining markets.
This is yet another sign of the massively harmful impact of tax avoidance on competition and the world we live in.
And is another reason why the General Anti-Abuse Rule is not good enough and a general anti-avoidance principle is needed.