Monday, October 05, 2015

The Corporate Tax Scam

The AstraZeneca pharmaceuticals group uses a legal tax avoidance scheme, paying no UK corporation tax over two years despite global profits of £3bn.

AstraZeneca, one of Britain’s largest businesses, is using a multimillion-pound tax avoidance scheme in the Netherlands, set up months after the UK relaxed its tax laws for multinationals in 2013. A newspaper investigationhas found the pharmaceutical giant created the scheme using $2.7bn (£1.8bn) of internal group loans routed through its Dutch subsidiaries. It was legally able to do so partly by securing some UK tax deductions from the Dutch lending structure as well as by offsetting high running costs and investment at its UK operations and using other tax breaks, some relating to new medicine research and development. Tax experts said AstraZeneca’s scheme appeared to be constructed solely as a way to avoid tax, and that the company could benefit from this in the future. AstraZeneca’s Dutch structure was set up less than five months after new rules came into effect reining in HMRC powers to combat tax avoidance by international businesses.

The loan structure, which is within the law, centred around a type of Dutch co-operative, an unusual corporate entity first allowed in the mid-19th century to assist dairy farmers. AstraZeneca’s co-operative is incorporated at the group’s Dutch offices, eight miles east of The Hague. Accounts for AstraZeneca Finance Co√∂peratief WA do not show signs of significant business activity: there are no staff on the payroll and it has modest operating costs. Nevertheless the co-operative was packed with loans of $2.7bn from head office in the UK, and charged interest of more than $140m a year. Interest flows exploited differences between the way tax codes in the UK and the Netherlands apply to Dutch co-operatives. The result was that the two tax offices treated the interest as occurring on their own patch, both awarding huge tax breaks for the same payment.  In tax avoidance jargon, claiming a tax deduction twice on the same payment is called “double dipping”.

Stephen Shay, a senior law lecturer at Harvard Law School who has held senior tax roles in the US Treasury and who gave expert testimony in 2013 on Apple’s tax avoidance structures in a Senate investigation, said that it was “hard to say” how the companies in the Dutch structure “have a real commercial purpose other than to achieve the tax outcome”.

Richard Brooks, a former HMRC tax inspector, now a journalist at Private Eye and author of The Great Tax Robbery, said: “It’s clear from the AstraZeneca companies’ accounts and replies to [the Guardian] that this scheme was designed to generate a UK tax advantage.”

Richard Murphy, accountant, tax campaigner and the author of The Joy of Tax, said: “The structure only appears to exist for tax purposes, to try to secure a tax advantage.”

AstraZeneca’s top tax accountant, Ian Brimicombe, sat for several years on a Treasury committee advising the government on the changes in the law. Pascal Soriot, AstraZeneca’s chief executive, was among more than 100 business leaders who signed an open letter in support of Conservative party tax policies during the general election campaign earlier this year.

Senior OECD officials have warned current rules are so abused – both by multinationals and by countries competing for investment – that they are close to breaking point. But British diplomats, while supportive of many OECD reforms, have battled behind the scenes to protect prized tax policies that helped make Britain a favourable environment for the location of international business.

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