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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