War on Want started a new campaign against the tax affairs of Alliance Boots yesterday, and have at least three articles on the issue in the FT this morning. One says:
Alliance Boots, which owns one of the UK's oldest and most trusted high street brands, has come under fresh pressure from campaigners over how much tax it pays.
The claims are the latest allegations aimed at reinforcing public anger that large companies can use complex arrangements to minimise their tax bills within the law.
The essence of the claim is that not enough information has been disclosed on a complex debt deal to know who really profited from it, where, why and with what UK tax implication.
The appeal to the OECD is clever, and new: I welcome it. The UK government is forced to act as a result. But the win has already been secured in a very real sense. The Lombard column in the FT has this headline:
Alliance Boots can dispel WoW factor with disclosure
Precisely right: tax haven secrecy is key to the issue here.
The same column adds:
Alliance Boots has all the characteristics a tax campaigner could ask for in a target. It is a trusted healthcare retailer, founded, like Cadbury, by philanthropic Victorians. But in its modern incarnation it is a tax-savvy group, which was purchased for £12bn in 2007 by Kohlberg Kravis Roberts and entrepreneur Stefano Pessina.
War on Want is the latest righter of perceived wrongs attracted by the contrast. The charity alleges that “entities apparently controlled by Mr Pessina have achieved exceptionally profitable results” from offshore transactions.
AB “categorically refutes” the claims, which it says are defamatory. Sadly for the group, Britons are now predisposed to believe the worst of businesses.
Is anyone surprised by that?
Good work by WoW it seems to me, including their admission that this is not an open and shut case but about knowing what happened: accountability is key, as ever.
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It’s a slightly strange report. They note that the interest deduction reduces corporation tax paid: something entirely true. But they fail to note that interest paid will be taxed at the level of the recipient.
Which is a bit odd really. And so far they’ve not managed to provide any evidence that the total tax bill is lower: it depends upon who holds that debt and what tax rates they face on the interest they receive.
Stop being a prat Tim
You know that interest is not paid in many cases by moving the receipt offshore
Does that not then suggest that the money came to the UK from overseas?
So before the sale we have a foreign jurisdiction in which there is a large amount of cash generating some income which is taxable there. We also have a UK business which is generating profits in the UK which are taxable in the UK. Two assets, each producing taxable profits, one in each country.
When the UK shares are sold for foreign money, we swap this over: we now have a large pile of cash in the UK, which is presumably generating some sort of income which is taxable in the UK, and we have loan stock held overseas producing interest which is taxable overseas; and we have the leveraged business which is (for the sake of argument) producing no profit. We now have three assets which still produce two income streams, one in the UK and one overseas.
We’ve also had a chargeable gain arising on the sale of the shares. So as far as the UK goes, we have swapped an income-producing business for income-producing cash, so we still get income to tax; plus we have a one-off transaction tax (plus SDRT, so two one-off transaction taxes). So the UK Exchequer makes an immediate gain, for no immediate or on-going loss.
I can see that one obvious effect is that the asset which was once producing UK-taxable income (the business) is now not doing so, but as it has been replaced by another asset which is generating tax in the UK I find it hard to call this tax avoidance. It’s like complaining that when I sell one car and buy another I am no longer paying VED on the first.
The arrangements are not clear
But they do involve tax havens
There are almost no funds located in tax havens that originate there
In that case all offshore finance ultimately involves round tripping and the artificial relocation of the recording of transactions
I work in the insurance industry, specifically providing pension and savings products to UK pensioners. I know several such companies that hold Alliance Boots debt – all on-shore, UK tax paying entities.
I suspect that it is true the the UK tax man does not get 100% of the tax due on this debt, but overseas holders will have their own tax authorities to deal with.
(The flip-side of this, is obviously that the UK tax receipts benefit from taxes paid by UK holders of non-UK issued debt).
The pension fund does not pay tax
As you well know, pension funds just affect the timing of tax. The income tax is paid by the recipient (income tax) when they draw their pension.
To state “The pension fund does not pay tax” implies they are another form of “off-shore tax haven”.
I made the point tax is not paid
And that is correct
We cannot assume tax in the future
Tax is not paid because Parliament has specifically legislated that it should not be. Following those rules is hardly tax avoidance.
That ignores arbitrage – the major focus of international tax avoidance debate
That rather undermines your grossly simplistic and narrowly focussed argument
It also ignores the whole basis of the GAAR
Trite answers do not become you
And deleting comments does not become you.
To repeat the deleted comment: I was talking about the pensions point, not arbitrage. You said tax not being paid is a bad thing, even if it is because the income is in pensions.
Even Margaret Hodge has said that using an ISA is not tax avoidance, and pensions are surely comparable to ISAs: a deliberate policy by Parliament to exempt certain income from tax.
You made a non-point
You have made it again
I have replied to it already so did not think it needed repeating
That’s called editorial freedom
Well, you may consider it a non-point but I consider it relevant.
By deleting the comment, all you do is reinforce the perception that you censor views that you disagree with simply because you disagree with them. You’re welcome to do that, of course – it’s your blog – but it may not be the impression you wish to convey.
Andrew
I really think I’d expect a professional to do better than repeat such utter nonsense
Don’t demean yourself by sinking to such trite levels of comment
Richard
Editor note: Comment deleted for neoliberal time-wasting trolling on issues already discussed
Richard,
Disagreeing with is not the same as trolling.
And I note that you still refuse to answer my simple question.
I have answered your question many hundreds (maybe more) times over on this site
Please do not waste my time
bit harsh RM!
Luxembourg (for we must all assume it is Luxembourg) taxes interest income (at a rate approx 8% higher than the UK corporate tax rate).
This type of transaction is quite common – debt issued by a company is trading at a discount, someone buys it and the value of the debt goes up, no different to buying shares on the FTSE and selling them when the value rises really, there is obviously a reasonable risk the value will go down and money will be lost.
Personally Im struggling with the tax issue in this story – maybe its solely about disclosure rather than tax?
If the debt is acqiured by a connected company then there will be a taxable profit generated in the borrower ie Alliance Boots – so if the implications of the story are correct then the gain has been subject to tax in AB so wheres the problem (probably no tax paid due to losses obviously, but thats a different debate about loss utilisation rather than the transaction itself).
The story is about disclosure
And no Luxembourg does not tax at 30%: it is a conduit state as you well know
Great news. And at least one person is walking around Sheffield with this shopping bag… https://www.facebook.com/ukuncut.sheffield#!/photo.php?fbid=551286544963446&set=a.101804656578306.3423.100002463157419&type=1&theater
“That ignores arbitrage”
Ricardo’s Iron Law of One Price…..please note that’s not neoliberal, not even neoclassical, that’s classical economics. The bit that even you admit might be correct…..
I take that as agreement