The government makes its own decisions on tax policy and does not take lectures from big business, the CBI’s Director General has told a BBC Panorama programme investigating ‘massive tax savings’ made by multinationals through transactions with Luxembourg subsidiaries.
The government makes its own decisions on tax policy and does not take lectures from big business, the CBI’s Director General has told a BBC Panorama programme investigating ‘massive tax savings’ made by multinationals through transactions with Luxembourg subsidiaries. GlaxoSmithKline said in a statement that the programme was ‘extremely misleading and lacking in context’.
John Cridland rejected the suggestion, put to him by the BBC’s Darragh MacIntyre, that it was ‘blatantly clear’ that big business had a ‘disproportionate influence’ on government policy. MacIntyre noted that the government had invited large companies, including some that had been ‘in dispute’ with HMRC, to consult on reform of the UK’s controlled foreign companies (CFC) rules.
John Bartlett, Head of Tax at BP, had told the programme that the UK’s tax regime was now competitive with ‘virtually every country’ in the world. ‘There is no better place from which to run a multinational corporation in tax terms. I believe that fervently, and it’s the result of ten years of hard work,’ he said.
‘Secret tax deals’
In a joint investigation with French TV, last night’s Panorama programme focused on the tiny state of Luxembourg, whose ‘biggest attraction’ was its reputation as a tax haven. It was home to half a million people but ‘thousands’ of companies had their offices there, MacIntyre said.
Panorama had obtained ‘thousands of pages of documents revealing the secret tax deals of hundreds of companies … all negotiated with the [Luxembourg] taxman’. Richard Brooks, a former tax inspector who writes for Private Eye, said: ‘We’re seeing for the first time exactly how companies avoid tax through a jurisdiction that wants to help them do it.’ Luxembourg was ‘exploiting’ its position as a member of the EU to say ‘come here, use us to avoid your tax bills back home’.
The scheme was complex, Brooks said, but the aim was fairly straightforward – to move profits ‘from a country where they’re taxed at a normal tax rate … to a territory that has much lower tax rates, where they may be taxed at less than 1%’.
Loans
According to Panorama, UK companies in the GlaxoSmithKline (GSK) pharmaceuticals group and the Northern & Shell media group paid interest on substantial loans from Luxembourg subsidiaries. That interest was effectively taxed at less than 1% in Luxembourg, while a deduction for the payments reduced the profits chargeable to UK corporation tax at 28%.
PwC’s Luxembourg office ‘devised all the tax deals’ documented in the papers obtained by Panorama, MacIntyre said, adding that tax avoidance was not illegal. Richard Murphy, Director of Tax Research UK, said the arrangements were ‘artificial structuring designed to undermine the tax revenues of the UK’.
The potential corporation tax saving for GSK in the UK was up to £34m, MacIntyre said, while Northern & Shell’s savings were estimated at £6m. Brooks said: ‘The company puts its money into Luxembourg and borrows it back. It just sends money round in a circle and picks up a tax break on the way.’
‘Disappointed’
GSK said in a statement issued in response to the programme: ‘GSK is very disappointed with this programme which was extremely misleading and lacking in context. Specifically, the programme’s selective use of facts led to a misrepresentation of GSK’s actions and a failure to recognize GSK’s significant UK tax contribution.
‘GSK strongly refutes any allegation of wrongdoing. At all times the company proactively disclosed its tax transactions to the relevant authorities and both the UK and Luxembourg tax authorities are agreed that GSK paid all the taxes due. GSK is a global company with 95% of its sales outside the UK however 20% of the company’s tax bill is in the UK. In total, over the period covered in the broadcast, GSK paid around £1bn in UK corporation and business taxes, plus an additional £1.3bn through income taxes of its UK employees.
‘The difference between UK and EU laws in this area has always created uncertainty for global organisations like GSK. GSK supports the new [CFC] tax rules developed by the UK government related to the taxation of overseas earnings which will provide greater certainty despite the fact that they will increase the company’s UK tax bill.’
Panorama reported that Northern & Shell said in a statement: ‘The board considers it entirely proper that Northern & Shell endeavours to structure its tax affairs in a tax efficient manner.’ The company said it had an ‘open, honest and positive working relationship with HMRC’.
A PwC spokesperson told Tax Journal today: ‘Most countries, including the UK, have a range of tax and other incentives and benefits to attract business and jobs and to remain a competitive place to do business.
‘The reforms of corporate international taxation in the UK, including the reform of the [CFC] rules, R&D credits and the “patent box”, have been widely consulted on and will make the UK a more attractive place to do business for all types and sizes of companies. We believe the new corporate tax reforms will be positive for the UK and that in a competitive and complex global environment it is vital to have tax rules affecting companies that make it easy and attractive to do business in the UK. PwC will continue to promote the UK as open for business and a place for growth and investment by our clients.’
Anti-avoidance rules
Most tax avoidance would not be caught by the government’s proposed general anti-abuse rule, Graham Black, President of the Association of Revenue and Customs, told Panorama. ‘It’s rather as if you legalise murder and then say that your crime statistics have fallen,’ he said.
The programme did not mention other defences against avoidance such as the mandatory disclosure regime, specific anti-avoidance rules and the ‘purposive’ approach to legislation in tax disputes taken to litigation.
But MacIntyre did note that the Chancellor was set to ‘relax’ the CFC rules. ‘Deals designed to avoid tax by draining profits out of the UK should be caught by the taxman,’ he said. ‘But from now on profits created by the overseas subsidiaries of UK-based companies should face little or no tax’.
HMRC’s International Manual notes that ‘company finance is an easy and attractive way for groups to change the jurisdiction within which profits arise’. It adds: ‘Where the borrowing is intra-group, the interest remains within the group; the group as a whole is no less profitable, but the borrower has paid less tax, and, where the lender is in a country with a lower corporation tax rate than the borrower or has losses to absorb interest received, the group can end up far better off overall. At the same time, there may be arbitrage ... or other opportunities to further reduce tax.’
HMRC’s manuals provide detailed guidance on UK legislation that may restrict deductions for interest, including transfer pricing and thin capitalisation rules; arbitrage provisions; the ‘unallowable purpose’ legislation; the world-wide ‘debt cap’; and ‘group mismatch’ provisions introduced in last year’s Finance Act.
The government makes its own decisions on tax policy and does not take lectures from big business, the CBI’s Director General has told a BBC Panorama programme investigating ‘massive tax savings’ made by multinationals through transactions with Luxembourg subsidiaries.
The government makes its own decisions on tax policy and does not take lectures from big business, the CBI’s Director General has told a BBC Panorama programme investigating ‘massive tax savings’ made by multinationals through transactions with Luxembourg subsidiaries. GlaxoSmithKline said in a statement that the programme was ‘extremely misleading and lacking in context’.
John Cridland rejected the suggestion, put to him by the BBC’s Darragh MacIntyre, that it was ‘blatantly clear’ that big business had a ‘disproportionate influence’ on government policy. MacIntyre noted that the government had invited large companies, including some that had been ‘in dispute’ with HMRC, to consult on reform of the UK’s controlled foreign companies (CFC) rules.
John Bartlett, Head of Tax at BP, had told the programme that the UK’s tax regime was now competitive with ‘virtually every country’ in the world. ‘There is no better place from which to run a multinational corporation in tax terms. I believe that fervently, and it’s the result of ten years of hard work,’ he said.
‘Secret tax deals’
In a joint investigation with French TV, last night’s Panorama programme focused on the tiny state of Luxembourg, whose ‘biggest attraction’ was its reputation as a tax haven. It was home to half a million people but ‘thousands’ of companies had their offices there, MacIntyre said.
Panorama had obtained ‘thousands of pages of documents revealing the secret tax deals of hundreds of companies … all negotiated with the [Luxembourg] taxman’. Richard Brooks, a former tax inspector who writes for Private Eye, said: ‘We’re seeing for the first time exactly how companies avoid tax through a jurisdiction that wants to help them do it.’ Luxembourg was ‘exploiting’ its position as a member of the EU to say ‘come here, use us to avoid your tax bills back home’.
The scheme was complex, Brooks said, but the aim was fairly straightforward – to move profits ‘from a country where they’re taxed at a normal tax rate … to a territory that has much lower tax rates, where they may be taxed at less than 1%’.
Loans
According to Panorama, UK companies in the GlaxoSmithKline (GSK) pharmaceuticals group and the Northern & Shell media group paid interest on substantial loans from Luxembourg subsidiaries. That interest was effectively taxed at less than 1% in Luxembourg, while a deduction for the payments reduced the profits chargeable to UK corporation tax at 28%.
PwC’s Luxembourg office ‘devised all the tax deals’ documented in the papers obtained by Panorama, MacIntyre said, adding that tax avoidance was not illegal. Richard Murphy, Director of Tax Research UK, said the arrangements were ‘artificial structuring designed to undermine the tax revenues of the UK’.
The potential corporation tax saving for GSK in the UK was up to £34m, MacIntyre said, while Northern & Shell’s savings were estimated at £6m. Brooks said: ‘The company puts its money into Luxembourg and borrows it back. It just sends money round in a circle and picks up a tax break on the way.’
‘Disappointed’
GSK said in a statement issued in response to the programme: ‘GSK is very disappointed with this programme which was extremely misleading and lacking in context. Specifically, the programme’s selective use of facts led to a misrepresentation of GSK’s actions and a failure to recognize GSK’s significant UK tax contribution.
‘GSK strongly refutes any allegation of wrongdoing. At all times the company proactively disclosed its tax transactions to the relevant authorities and both the UK and Luxembourg tax authorities are agreed that GSK paid all the taxes due. GSK is a global company with 95% of its sales outside the UK however 20% of the company’s tax bill is in the UK. In total, over the period covered in the broadcast, GSK paid around £1bn in UK corporation and business taxes, plus an additional £1.3bn through income taxes of its UK employees.
‘The difference between UK and EU laws in this area has always created uncertainty for global organisations like GSK. GSK supports the new [CFC] tax rules developed by the UK government related to the taxation of overseas earnings which will provide greater certainty despite the fact that they will increase the company’s UK tax bill.’
Panorama reported that Northern & Shell said in a statement: ‘The board considers it entirely proper that Northern & Shell endeavours to structure its tax affairs in a tax efficient manner.’ The company said it had an ‘open, honest and positive working relationship with HMRC’.
A PwC spokesperson told Tax Journal today: ‘Most countries, including the UK, have a range of tax and other incentives and benefits to attract business and jobs and to remain a competitive place to do business.
‘The reforms of corporate international taxation in the UK, including the reform of the [CFC] rules, R&D credits and the “patent box”, have been widely consulted on and will make the UK a more attractive place to do business for all types and sizes of companies. We believe the new corporate tax reforms will be positive for the UK and that in a competitive and complex global environment it is vital to have tax rules affecting companies that make it easy and attractive to do business in the UK. PwC will continue to promote the UK as open for business and a place for growth and investment by our clients.’
Anti-avoidance rules
Most tax avoidance would not be caught by the government’s proposed general anti-abuse rule, Graham Black, President of the Association of Revenue and Customs, told Panorama. ‘It’s rather as if you legalise murder and then say that your crime statistics have fallen,’ he said.
The programme did not mention other defences against avoidance such as the mandatory disclosure regime, specific anti-avoidance rules and the ‘purposive’ approach to legislation in tax disputes taken to litigation.
But MacIntyre did note that the Chancellor was set to ‘relax’ the CFC rules. ‘Deals designed to avoid tax by draining profits out of the UK should be caught by the taxman,’ he said. ‘But from now on profits created by the overseas subsidiaries of UK-based companies should face little or no tax’.
HMRC’s International Manual notes that ‘company finance is an easy and attractive way for groups to change the jurisdiction within which profits arise’. It adds: ‘Where the borrowing is intra-group, the interest remains within the group; the group as a whole is no less profitable, but the borrower has paid less tax, and, where the lender is in a country with a lower corporation tax rate than the borrower or has losses to absorb interest received, the group can end up far better off overall. At the same time, there may be arbitrage ... or other opportunities to further reduce tax.’
HMRC’s manuals provide detailed guidance on UK legislation that may restrict deductions for interest, including transfer pricing and thin capitalisation rules; arbitrage provisions; the ‘unallowable purpose’ legislation; the world-wide ‘debt cap’; and ‘group mismatch’ provisions introduced in last year’s Finance Act.
