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On 14 May BBC investigative programme Panorama looked into claims that major UK companies, including GSK and Northern & Shell, avoided payments of corporation tax through lucrative tax deals with Luxembourg authorities . . .

Panorama’s The Truth About Tax aired on BBC One on 14 May at 8:30pm as Darragh McIntyre reported on major UK companies allegedly avoiding corporation tax through securing secret tax deals with authorities in Luxembourg. Two main UK companies that were targeted during the thirty minute programme were GlaxoSmithKline and Northern & Shell.

We ask: were these major UK companies painted in a bad light?

McIntyre reported on confidential tax agreement documents from pharmaceutical giant GlaxoSmithKline (GSK) and accused GSK of avoiding tax by ‘taking advantage’ of Luxembourg’s tax structure.

GlaxoSmithKline’s headquarters are based in London and a GSK subsidiary was reported to have been opened in Luxembourg in 2009. McIntyre demonstrated that GSK ‘took advantage’ of Luxembourg’s tax system as the Luxembourg subsidiary had loaned GlaxoSmithKline’s UK headquarters £6.34bn and in return London paid £124m in interest back to Luxembourg; thus avoiding payment of UK corporation tax on the £124m interest.

McIntyre reported that if the sum of money is big enough that Luxembourg authorities will cut a deal to pay only half a percent in tax on the sum in question, meaning that GlaxoSmithKline were able to pay 0.5% tax on the £124m interest, compared to 24% in corporation tax that that would of been paid in the UK; effectively avoiding 27.5% tax which works out roughly as £34.1m.

Accountancy firm PricewaterhouseCoopers (PwC) are named on the confidential documents detailing GSK’s tax deals made with Luxembourg and are accused by McIntyre for helping GlaxoSmithKline to avoid large sums of tax; Ironically many labour and conservative politicians, who are publicly ‘fighting against’ tax avoidance, use the international accountancy firm to handle their personal taxes.

Northern & Shell

Channel 5 Entertainment

PwC were also reported to have arranged lucrative Luxembourg tax deals for Northern & Shell, owners of entertainment Channel 5 and celebrity gossip magazine OK!, who McIntyre accused of using similar tax arrangements to GlaxoSmithKline in order to avoid millions of pounds in UK corporation tax.

Northern & Shell allegedly avoided £6m in UK corporation tax in year one by transferring loans to their Luxembourg company, followed by a saving of £9m in the second year from paying a tax rate at less than 1%.

In a statement to Panorama, Northern & Shell, said:

“Our strategy is to comply with relevant regulations whilst minimising the tax burden for Northern & Shell and our customers. The board considers it entirely proper that Northern & Shell endeavours to structure its tax affairs in a tax efficient manner.”

Other major UK companies under attack by BBC’s Panorama The Truth About Tax included mobile giant Vodafone and confectionary company Cadbury Schweppes.

The Truth About Tax avoidance?

Margaret Hodge

Accusing the Taxman of making deals with corporations instead of working to regain money owed to the public purse, Margaret Hodge, MP, said:

“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.”

Corporate tax affairs should be “totally open, totally transparent and everyone should see them,” Hodge added.

Panorama’s The Truth About Tax failed to properly educate those with no prior knowledge of tax avoidance schemes and why such arrangements are in fact legal. So, when McIntyre posed the question to viewers: ‘it’s legal, but is it fair?’ many may have come to the wrong conclusion if they don’t understand the difference between tax avoidance and tax evasion, terms which are commonly confused with each other due to lack of public education from HMRC and national newspapers; in response to McIntrye’s question – surely that’s just the nature of business?

Concluding the programme McIntyre said that he had shown ‘just how far companies will go to avoid tax’, but Panorma’s The Truth About Tax seemed to elaborate on tax avoidance in order to paint major UK companies in a bad light; I don’t think that you can put tax avoidance in the same bracket as the act of murder.

If companies were no longer allowed to use ‘legal’ tax avoidance loopholes to reduce their tax bills then surely the UK economy would suffer from inflated product prices and the loss of jobs to compensate?

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