I was interviewed by Joe Lynam for the Today programme at 6.49 am this morning (a link is available here for the next few days) on the strange case of Lidl's accounts.
What's strange about Lidl's accounts is that there are none on public record in the UK. Despite its now economically significant presence in the UK it has not filed accounts with Companies House since 1996.
Now I stress that Lidl is not breaking any law in not filing accounts. It operates in the UK as a branch of a private German company and because that company is legally obliged to file accounts in Germany nothing is required to be filed here under UK law.
And I stress, this does not mean Lidl is not paying UK tax: I have seen the letter of comfort HMRC has (rather unusually, I suspect) supplied to Lidl saying that as far as it is aware Lidl is up to date with its obligations.
That does not, however, prevent me feeling distinctly unhappy about this whole arrangement. Firstly, nothing in the German accounts gives an indication of the scale of Lidl's UK activities.
Secondly, those accounts are not, in any event, easily available in Germany.
Thirdly, we are left with the situation as a result of this loophole in our company law where a company with a significant UK presence is simply not accountable under UK law for its trade in this country to its UK stakeholders.
Who are those stakeholders? You are. It staff are. Its suppliers are. Its customers are. Many government authorities are. Its competitors are.
That is why accounts are required on public record. When a company trades with limited liability the obligation to file accounts was created to ensure the trust placed in the company was not abused with all of us having to pick up the pieces if things go wrong. And in this case we have no clue what that risk is. That's why this matters.
A year ago David Cameron told the G8 that trade, tax and transparency were at the core of his agenda. If he was serious then he would change the law so that Lidl and any company with a trading presence in the UK would have to file accounts for its UK operation as well as its operations as a whole with Companies House. Without that requirement companies like Lidl will continue to make a mockery of the disclosure requirements in UK company law.
And as result all other UK supermarkets will trade at a competitive disadvantage to Lidl because they simply do not know what it's up to, which is another very good reason for this change in the law. A level playing field is an essential pre-requisite of fair markets. It's time for ministers to commit to supplying it.
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I agree it’s an odd situation but it’s worth noting:
Your number 3, it’s not a company it’s a branch
And on your limited liability point, it’s not getting any limited liability in the uk, so I’m not sure that argument is relevant, it’s getting limited liability unde German law presumably and it’s results are consolidated into that German entities accounts. It feels unlikely to be a tax scheme as the branch profits will be subject to tax in Germany which has a higher rate than the uk (obviously the pay uk tax on the uk branch operations)
I wonder whether the law should just say branches have to file accounts? But perhaps we are back to the limited liability point again (ie it’s not getting any uk limited liability)?
The losses will be in the UK
They are getting UK limited liability
Shall we be realistic here?
How would its losses affect us here in the UK.
Why have you taken so long to get to this company?
Because suppliers and employees who would lose are here
Why so long? Because I am finite and human
On a related point, Richard, there was an interesting piece in a recent Private Eye about the extent to which the price war (or discounting, to be polite) that Lidl’s and Aldi’s success has kicked off is driving down the prices paid to farmers (i.e. their share of the retail price of food). Potato prices have halved over the past 12 months, apparently, and the price paid for many other foodstuff is going to be driven down quite dramatically as Tesco, Morrisons and so on seek to compete with the newcomers.
I appreciate that a lot of wealthy farmers who are able to exploit various subsidies and such like may well not feel much pain, for a while at least. But as the article says: ‘how long will UK farmers continue to be able to grow food at far below the cost of production?’ While Lidl, Aldi, poundshops, pawnbrokers and food banks may now be an integral feature of low wage/no wage Britain’s surveillance state there are clearly many more intended and unintended consequences still to emerge.
I live in a farming community
There are wealthy farmers
Their employees aren’t and pressure on their no longer protected pay is another consequence of this
“On a related point, Richard, there was an interesting piece in a recent Private Eye about the extent to which the price war (or discounting, to be polite) that Lidl’s and Aldi’s success has kicked off is driving down the prices paid to farmers (i.e. their share of the retail price of food). Potato prices have halved over the past 12 months, apparently, and the price paid for many other foodstuff is going to be driven down quite dramatically as Tesco, Morrisons and so on seek to compete with the newcomers.”
Yup….good old externalities.
Hi Ivan
Free float potato prices had ‘doubled’ over the previous 12 months. 2013 was the anomalous year. See the potato price tool at the Potato Council.
http://www.bpcgp.com/gp/wapsfig.php
Increased production and reduced demand methinks. Private Eye seem to indulging in some conspiracy theories.
I’d say the market will adjust as it always does.
You have a blind faith in the market many people do not share
Usually wisely, based on experience
Unusually I disagree with Ivan Horrocks here. I don’t think that Tesco, Asda et al knowingly left any margin at all for the farmers even before the arrival of Aldi and Lidl as important players in the market. If they did it was a ‘mistake’.
What the established supermarkets (and other ‘big retail’ come to that) are doing is undoubtedly an abuse of market power both in respect of their customers and their suppliers. I once saw some figures for milk that showed how the retail gross margin had moved over a decade or so from circa 1 pence/litre to over 15 pence/litre. Under pressure (or so I assume) our local Sainsbury recently cut the price of the 4 pint size we usually buy from £1.39 to £1.00.
I’m sure they are still not making a loss at this lower price – only reaping slightly less obscene margins for a product where, absent their excessive market power, they should expect to make a wafer-thin margin. What on earth are the politicians doing? This really is the lowest of low hanging fruit for a truly reformist government to pluck.
What losses? You don’t know there are UK CT losses because you haven’t seen any accounts or returns.
And where and how would these branch losses be used? why would we consider that avoidance? Why would we object?
A german company setting up a UK branch is perfectly normal, reasonable and accepted. This is a story based upon nothing at all.
IF there were losses
You are time wasting and will be deleted again
Ironman,
The only losses I see referred to above are, if I’ve understood correctly, losses to creditors if Lidl, as a limited liability entity, were to fail to meet its credit obligations. Nobody else wad talking about UK tax losses and, in fact, the post isn’t really about tax.
I must admit that I was at first perplexed when I read it: because limited liability is granted by Germany it wasn’t immediately obvious why UK stakeholders should have the same entitlement to transparency as they would in relation to a UK Ltd company.
Having pondered the question, however, it makes more sense (to me) to think about what would happen if you were a Lidl UK creditor (say, a landlord of one of the shop locations, as that’s unambiguously a creditor of the UK bit – we’ll assume for the sake of argument that the rent is paid in arrears) and the company went bust. Clearly, you would be unable to sue the company’s owners for it because the UK legal system (presumably due to international laws/treaties) will respect the German limited liability status.
Similarly, anth’s argument that only the branch accounts need to be publicly available in the UK was initially persuasive until I thought about the hypothetical landlord. As a creditor, you’re exposed to risk that depends on the financial health of the whole company, not just the UK branch.
Z
You are right Z
Lidls are shortly to open a new store near the Co-op where I live..for sure the consequence will be the Co-op will eventually shut, or drastically downsize. Not even the lure of members annual dividends will save them, as they have been suspended for a while now. Good news maybe for the local consumers, not so good for the Co-op employees and suppliers.
Do we know Lidls are trading profitably, or subsidising from German operations…like some sort of dodgy transfer pricing policy to establish a dominance in the market, and then …..?
We do not know
The information is hidden
That is why this is an issue
Apparently Lidl have published the amount of UK corporation tax they paid. I can’t find the original press release/source, but it is on the BBC website: http://www.bbc.co.uk/news/business-28416081
It was released to the BBC but with no accompanying data
We need full accounts
Letters of comfort are relatively common – many overseas jurisdictions want confirmation that tax has been paid before giving double tax relief, and HMRC saying that “as far as it is aware Lidl is up to date with its obligations” is the sort of thing that can be requested in that connection.
You’ll have noticed that Lidl has now published the tax it paid in 2013, though I haven’t seen that they’ve published a profit figure so that’s not as helpful as it might be.
They only published because of this investigation
http://www.bbc.co.uk/news/business-28416081
“German discount retailer Lidl has published the amount of corporation tax it pays in Britain for the first time.
Lidl, which has around 600 stores in the UK with plans for a further 900, paid “more than £25m” in tax on the profits earned here in 2013.
Based on analysis by Kantar Retail, that is an effective corporation tax rate of about 20%”
But that’s an estimate
We need accounts
“….what would happen if you were a Lidl UK creditor (say, a landlord of one of the shop locations, as that’s unambiguously a creditor of the UK bit — we’ll assume for the sake of argument that the rent is paid in arrears) and the company went bust. Clearly, you would be unable to sue the company’s owners for it because the UK legal system (presumably due to international laws/treaties) will respect the German limited liability status.” Zacchaeus
And how would it be different if it were a UK limited company?
The landlord in that situation would also be unable to sue the owners because of limited liability.
As for Corporation Tax tax paid in the UK, HMRC will have seen the branch accounts and branch tax return. They have presumably accepted the position. Unless Richard is suggesting that he should be able to investigate Lidl’s UK branch corporation tax return when HMRC have decided not to what is gained? If Richard does not trust HMRC’s judgement on this matter, why stop at Lidl? Why not ask that any tax return can be investigated by any ‘stakeholder’ (which seems to be just about anyone).
And as for competitors not knowing what Lidl is up to, these are the same supermarkets capable of issuing money off coupons at the till if your shopping costs more than a competitor on the same day? Being able to look at a rival’s accounts as long as six months after the end of the accounting period would somehow help them?
Do you deny accounts on public record have any merit or use?
If so, why?
If thy were so insignificant why would Lidl work so hard to make sure data is not available?
“And how would it be different if it were a UK limited company?” – Chris
It wouldn’t. That’s exactly my point.
The creditor of the UK-based company suffers the disadvantages of dealing with a limited liability counterparty, but a quid pro quo is that he has access to a certain level of information which that counterparty is required to disclose. The creditor of the overseas entity trading through a branch suffers the same disadvantages but without the advantages of the disclosure.
As I thought I’d made clear, I was making this point in response to Anth’s (9.16am) suggestion that the branch didn’t enjoy UK limited liability.
I won’t bother answering your tax point because, as far as I’m concerned and as I pointed out above, the point of principle here isn’t primarily about tax. As far as I can see, the same is true for Richard (though admittedly I haven’t yet been able to find the relevant Today clip so he may have talked more about tax in relation to this issue on the programme).
The competitors know what Lidl is charging. What they would get from accounts which detailed the branch results (and what it, in theory, knows from the accounts of a UK-based competitor) is what results it is obtaining as result of adopting its pricing strategy. Hence it gets an advantage. In practice, this will not be a bit advantage, but this is about principles rather than the details many commentators here choose to nit-pick about.
The issue here is not tax
You are right
I presume HMRC get all they want – which shows the data is available to publish
Your analysis, and reference to nit-picking, is correct
Out of interest, why are you concentrating on Lidl rather than Aldi?
Aldi publish accounts
The difference is very clear
‘Who are those stakeholders? You are. It staff are. Its suppliers are. Its customers are. Many government authorities are. Its competitors are.’
Looking at the stakeholders:
Staff – don’t know nor care about some esoteric point about accounts. Lidl are opening lots more branches, pay well (as do Aldi).
Suppliers: ‘ If you don’t publish accounts as Mr Murphy suggests, I won’t sell you my £1m worth of production’ Maybe not.
Customers: See Staff + price is what matters
Government authorities: the one (HMRC) that has a view is content.
Competitors: Know exactly as they all do price comparison.
And – isn’t this exactly as the single market in the EU is designed to work – i.e. a company in EU country A opens a branch in EU country B and is accountable for tax etc in country A?
Respectfully, pure nonsense
If you were to be believed data would have no impact on our well being
So how without it are we to decide?
Now I accept all decisions are imperfect but in your world we’d have no clue at all
Please don’t waste my time with such nonsense again.
Not expecting you to publish this, but here goes!
Hmm – OK in data terms impacting on the well being of the stakeholders
Staff – compare data on wage rates & conditions
Suppliers – compare prices from potential customers
Customers – compare prices
Government – compare tax paid vs law
Competitors – compare prices
How is this pure nonsense? Only government uses tax data.
I publish it to show just how daft your view point is
Do you really think markets would survive without sound accounting data?
And do you really think investment markets have no use for that data?
If you do, you’re seriously deluded
Likewise if you think management do not compare accounts you show you have no experience at all of business
Staff – greater transparency would allow the employees to identify if the employer is making what they might consider to be ‘excessive’ profits, leading them to demand better pay and/or affecting staff morale. There are certainly examples of the mainstream media – rightly or wrongly – contrasting corporates’ large profits with the low pay of their workers. By not publishing information about its UK operation’s profitability, Lidl therefore potentially enjoys an advantage over competitors that run such risks.
Suppliers – (in)famously, supermarkets make a significant proportion of their profits because their sales are in cash and their purchases are on credit, particularly when interest rates are high and they can therefore earn a good return on the consequent positive cashflow. They are also alleged to frequently pressure suppliers into longer credit terms. Suppliers therefore need transparency over the risk they’re taking on when they sell that £1m of goods on credit.
Customers: see staff. Price probably matters more, but publicity and perceptions about a firm’s profitability can affect foot-fall. This potentially gives Lidl an advantage over those whose performance is more transparent to journalists etc.
Government authorities: given that we’re talking about Germany rather than one of the less open jurisdictions, you’re probably right to think that HMRC aren’t losing too much sleep over this in Lidl’s case. However, I wouldn’t read too much into the comfort letter. Such a letter will probably cover a rather narrow range of criteria, and there are circumstances (N.B. I have no idea whether such circumstances exist in relation to Lidl) in which they would be obliged to provide one even if there were aspects of the company’s tax affairs with which they weren’t comfortable, or even that they were disputing.
Competitors: yes, its UK competitors know the prices at which Lidl is selling products without looking at its accounts. What they don’t know, however, is what results Lidl is getting from its pricing policy. Lidl, on the other hand, knows this information about its competitors who are required to publish accounts information in respect of their UK operation. This gives Lidl an advantage.
Your EU point, if I’ve understood it correctly, is a red herring. The freedom of establishment means – in very, very crude terms – that you can’t discriminate against a person (including a company) from another member state who wishes to do business in your country. It doesn’t mean that you have to discriminate IN FAVOUR of them.
Thanks
Good comments
Appreciated
Just as a matter of interest, how is Lidl’s share of the supermarket business calculated? In reality all these numbers are estimates, or more correctly guesstimates.
Under EU rules a German company operating in UK doesn’t have to file detailed accounts there, neither does a UK company operating in Germany, in reality. There is a constant beef about Tesco’s sales in Ireland not being revealed.
I agree; Tescos do not disclose data for Ireland
In a supposed open market this is absurd
If Tesco are not disclosing their Irish results, it stands to reason it is not possible to untangle their UK results. So Sainsbury can no more find out what Tesco are up to in the UK than they can Lidl so where is the competitive advantage Lidl has achieved over its rivals?
Indeed, given that pricing policy varies across different parts of the country and even between different types of store (Express v Superstore for example) unless you are advocating shop by shop accounts, there would be nothing that could be gleaned from accounts which included financial information dating back as much as 18 months that could possibly help competitors.
You’re suggesting that sophisticated successful business organisations would be stumped at what to do if Lidl start selling a loaf of bread for 70p until Lidl published their annual accounts?
Let’s see who is complaining about the lack of information from Lidl. Is it Tesco or Sainsbury or Morrison, those supposedly suffering under this terrible competitive disadvantage? No, it’s you, suggesting the complaint has nothing to do with competition at all.
The first person on the BBC clip was from Morrisons, calling for a level playing field
You didn’t listen, did you?
The evidence that you’re just trolling is now overwhelming. All further comments from you will be deleted
“I wonder whether the law should just say branches have to file accounts? ”
Here in the Isle of Man there are branches of Next, Monsoon, Waterstones, TK Max, Tesco, WH Smith, Marks and Spencer and many others. Maybe you could campaign on our behalf for them all to publish branch accounts here.
I would if I had the time
Let’s solve the bigger issues first on this one
‘I publish it to show just how daft your view point is
Do you really think markets would survive without sound accounting data?
And do you really think investment markets have no use for that data?
If you do, you’re seriously deluded
Likewise if you think management do not compare accounts you show you have no experience at all of business’
Your original post didn’t mention markets nor investment markets amongst the stakeholders. Clearly, if you wished to invest in Lidl then you would require accounting information.
Markets, however, survive without sound accounting data (see your local farmer’s market)
You haven’t responded at all to the comments on the stakeholders you actually mentioned in your original post – just a personal attack.
Do you compare accounts with your accountancy competitors? If not, then you can’t, by your own statement, be managing your business properly.
I am sorry to tell you that I also would not reply to those commenting here suggesting the sun is not coming up tomorrow morning
I would remind you of the comments policy, especially, but not exclusively part 5
Richard, it would be strange indeed if public policy was in anyway driven by how happy or otherwise you feel about things. There are approximately 65 million people in the UK after all; and we are led to believe that increasingly UK shoppers are favouring Lidl (and Aldi) over the other supermarket chains. You would be hard pressed to find lots of examples of unhappy experiences, and clearly they are able to find enough people willing to work in their apparently expanding store base. So what additional utility are you suggesting we might get from a new law requiring Lidl to publish the accounts you suggest, apart from perhaps you sleeping more soundly at night?
A competitive level playing field is what I want. That’s the basis for the efficient allocation of resources in a market economy. Nothing less will do if you know your theory.
That’s what I am calling for.
And very oddly, still you right wing trolls are not happy. Now why is what, I wonder? Could it be that you’re simply dedicated to market abuse of all sorts?
Is there market abuse here? Accepting that there are a small number of large players in this market, then surely the emergence of new players is a good thing.
PS I don’t mind you calling me right wing, but you saying it does not make it true, and nor is this particularly a political issue.
If transparency to create effective markets is not a political issue, what is?
To comply with the ‘level playing field’ issue and the law, as I understand it, Lidl should publish it’s accounts for Y/E 31/12 (assuming that is their Y/E date)(Year 1) by 30/09 the following year (Year 2).
Until this, the only accounts available are those dated a year earlier i.e 31/12 year -1.
Assuming the Year 1 accounts show a loss because of an accelerated store opening programme – how will this affect the Stakeholders?
They are not publishing accounts
What is the relevance of your question?
If it’s so important to have local country subsidiary accounts, why are you always saying these accounts are misleading and that’s why we need unitary tax?
Precisely because at present it is inconsistencies that proved the case for a unitary approach
‘They are not publishing accounts’
I know – the point of the question is- if they did as described what difference woul it make to the stakeholders you identified?
If you really do not know the benefit of accounting data for risk appraisal there are plenty of texts available and I am not re-writing them for you personally
OK – so its risk appraisal for the stakeholders that publishing accounts would provide. Really? Which stakeholder group(s) are you suggesting would benefit? And as far as the UK is concerned, then what risks would this help stakeholders appraise? Can’t imagine many shoppers would find this helpful. Government is clearly not interested. Suppliers perhaps – do you think this would alter any commercial relationships? Or perhaps its employees? Can’t see this myself. Richard, please illuminate and make a case.
http://www.ion.icaew.com/Talkaccountancyblog/post/ICAEW-project–The-Corporate-Report–still-relevant-today
“If transparency to create effective markets is not a political issue, what is? – See more at: http://www.taxresearch.org.uk/Blog/2014/07/22/the-strange-case-of-lidls-accounts-2/comment-page-1/#comment-695352”
Richard, that is a bit subtle – would even go over Miliband’s head, and you can’t get more political-analytical than him! In our polarised locality then perhaps you might make a political case for price controls, or planning, or possibly carbon footprints, but accountancy? Have you been having too much sunshine?
No: I discuss reality