GSK secret tax deals in Luxembourg

14 may 2012 - BBC source : icsaglobal.com

Major UK-based companies have been found to be cutting secret tax deals with Luxembourg authorities to avoid paying corporation tax in Britain.
An investigation by the BBC’s Panorama programme has claimed to uncovered evidence that companies such as pharmaceutical giant, GlaxoSmithKline (GSK) and the media company Northern & Shell have been exploiting tax loopholes to decrease the amount they paid to the UK Exchequer.

The programme has reportedly obtained confidential tax agreements detailing plans to move profits offshore to avoid what was a 28% corporate tax rate at the time. These documents were devised by accountancy firm PriceWaterhouseCoopers.

The BBC outlined that in the case of GSK, the UK-headquartered firm set up a new company in the European tax haven of Luxembourg in 2009. In 2010, the new subsidiary lent £6.34 billion to a GSK company in the UK. In return, the UK company paid nearly £124 million in interest back to the Luxembourg subsidiary - effectively removing that money from the UK company's profits. That move meant that the money was no longer available to tax in the UK at 28%.

In Luxembourg, tax authorities had agreed a generous deal to levy tax on that £124 million at effectively less than 0.5%, or just over £300,000. As a result, GSK in the UK potentially avoided up
to £34 million in UK corporation tax.

Northern & Shell, owners of Channel 5, the Express newspapers and OK! magazine, transferred loans to a company it set up in the European tax haven totaling £804 million. As a result of an incredibly low tax rate of less than 1%, the media company had secluded profits which would otherwise have generated £6 million in UK corporation tax.

Richard Brooks, a former investigator with HMRC, said the documents reveal in detail the ‘machinations of tax avoidance on a large scale’ with the full cooperation of the tax haven.

‘We're seeing really with these, for the first time, exactly how companies avoid tax through a jurisdiction that wants to help them do it,’ he told the BBC.

In a statement following the knowledge of Panorama’s intent, GSK said, ‘Both the UK and Luxembourg tax authorities are agreed that we have paid all the taxes that are due. We take very seriously our duty to pay tax. But we also have a duty to our shareholders and patients to be financially efficient so that we can maximise returns to investors and fund the development of future medicines.’

A spokesperson for the company also stressed that over the period the investigation is looking at, GSK paid around £1 billion in UK corporation and business taxes’.

Margaret Hodge MP, who chairs the Public Accounts Committee, which questioned settlements HMRC had reached with major companies, expressed concern over the ability of Parliament to scrutinise them.

‘Because of the veil of secrecy surrounding all these decisions around tax, and we're talking big numbers here, lack of transparency means that we, on behalf of the taxpayer, cannot be certain that this was a good, honest, proper deal.’

The programme is due to air on BBC One on Monday 14 May 2012.
http://www.icsaglobal.com/chartered-secretary/news/may-2012-bbc-panorama-to-reveal-secret-tax-deals-in-luxembourg