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Sunday, April 05, 2015

Measures to tackle tax avoidance start to bite

This article in today's Sunday Times suggests that measures put in place by the Coalition Government to tackle tax avoidance by big multi-national companies are starting to have an impact.

The paper says that global food giant Kellogg has warned that its profits could be slashed by the international drive to clamp down on tax avoidance. Apparently, they believe that efforts by the UK Government and others to close loopholes could lead to a “material” rise in its tax bill:

The revelation comes days after the so-called “Google tax” came into force in Britain. It is designed to prevent companies funnelling profits overseas to avoid tax. 

Formally known as the diverted profits tax, it was introduced by the chancellor in one of his final acts before the dissolution of parliament. The new rules will penalise companies that artificially shift profits to foreign entities whose main purpose is to help them cut their tax bills.

George Osborne’s move is part of a co-ordinated campaign against tax avoidance by the Organisation for Economic Co-operation and Development and the G20 club of rich nations. The OECD’s final blueprint for the clampdown is expected to be published at the end of the year.

Kellogg acknowledged the potential impact in its latest annual report. “Contemplated changes in the UK and other countries of long-standing tax principles, if finalised and adopted, could have a material impact on our income tax expense,” the report said.

Britain is an important market for Kellogg as consumers here spend more per head on breakfast cereals than any other European country. The maker of Corn Flakes, Special K and Rice Krispies distributes its goods to British households through two main subsidiaries.

Kellogg Marketing and Sales, which sells breakfast food and Pringles crisps on behalf of Irish and Swiss-registered companies, reported £622m of sales to UK consumers in 2013. Kellogg Company of Great Britain makes cereals under a contract with an Irish-based entity. 

The amount of money involved is substantial:

In 2013, the two subsidiaries paid corporation tax of £8.4m on declared profits of nearly £50m. However, this outlay was more than offset by a legal accounting manoeuvre. 

Another UK-registered offshoot, Kellogg Group Ltd, booked a countervailing tax credit of £11.8m. It holds various overseas assets, and made a £124m loss in 2013 after writing down the value of some Latin American interests. 

The US giant’s Irish division, Kellogg Europe Trading Ltd, is the parent of the two main British operating businesses. This Dublin-based company made a loss of €101m in 2013 after paying €148m interest on loans from other Kellogg entities in Luxembourg.

Kellogg has six companies registered in Luxembourg. In 2013, they collectively reported profits of about £57m and paid corporation tax of just £210,000. That equates to a rate of 0.37%. The headline corporation tax rate in Britain is 20%.

In 2013, the American parent reported global sales of $14.8bn and an operating profit of $2.8bn. 

If Kellogs is made to pay its fair share of tax as they fear then at least I will be able to eat my cornflakes with a clear conscience.

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