It’s the tax dodging, stupid

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Courtesy of Private Eye 1366:

THE proposed takeover of British drugs company AstraZeneca by US giant Pfizer graphically illustrates how George Osborne’s conversion of Britain into a corporate tax haven distorts industry worldwide and threatens domestic jobs and business.

The plan is for Pfizer to use the takeover to “re-domicile” its head office. This means little more than setting up a brass plate company in the UK at the top of the organisation which will magically enable a firm turning over more than $50bn a year to cut its tax bill from around 27 percent at present to about 20 percent. Since the combined group will continue to make most of its money in the US, where tax rates are around 35 percent, and international tax rules ostensibly work on the principle that profits are taxed where they’re earned, the monumental scale of the tax dodging is clear. Analysts put the tax “saving” from the merger at more than £800m a year.

Laws introduced by the chancellor two years ago allow a UK-controlled multinational to shift profits into tax havens like Ireland and the Netherlands without being taxed. They can then get them back to shareholders tax-free via a UK holding company, whereas if the company had been an American one, the US taxman would have taxed them. As our special report Tax, Lies and Videotape revealed last year in Eye 1349, Osborne’s laws are being exploited to ensure that companies drastically reduce or eliminate tax bills. Tax advisers, including a KPMG director, told the Eye’s undercover “tax consultant” that the rules could be used in a merger to “wipe out” his client’s UK tax bill.

Along with British jobs, the takeover will thus threaten AstraZeneca’s existing corporate tax payments, which appear to be around £50m a year, though the company refuses to divulge them. Speaking to Wall Street analysts about the deal, Pfizer chief executive Ian Read cited the new offshore rules and tax incentives for holding patents in the UK as generating the lower tax bill. Asked whether he would have launched the takeover bid if the tax manoeuvre weren’t possible, he replied: “I don’t want to speculate on hypotheticals.” Translation: “no”; this deal depends on Tax Haven UK.

The government and the accountants who helped devise the new rules are desperate to present the wave of takeovers to come, from which they will make fortunes, as something other than tax dodging on a global scale. KPMG, which seconded a senior employee to the Treasury team drawing up the new laws, reckons it is working on re-domiciling plans for 100 multinationals, with the other Big Four accountants reporting similar interest. Its tax boss Jane McCormick told the Telegraph last week that since companies from various sectors were looking to set up UK holding companies, it “feels to us that the economy is rebalancing”.

What it is actually tilting the economy towards, as the Eye pointed out when the tax changes were proposed in 2010, is a dependence on tax dodging. Business secretary Vmce Cable’s claim to parliament that “we see the future of the UK as a knowledge economy, not as a tax haven” was as empty as his promises on Royal Mail.

This mega-deal could be the one that finally makes others twig that, far from simply tweaking the tax system to make it more “competitive” as Osborne and his tax minister David Gauke repeatedly parrot, the coalition has undermined not just Britain’s tax system but everyone else’s too. Uncle Sam for one will not be happy.

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