It is believed that UK-based firms like GlaxoSmithKline (GSK) and Northern & Shell plot secret tax deals with authorities in Luxembourg to evade millions of corporate tax.
According to the BBC’s Panorama programme which obtained confidential tax agreements which contained detailed plans to reflect off-shore profits to avoid payment of corporate tax which stands at 28%.
The programme disclosed that GSK set up a new subsidiary, which lent £6.34 billion to a GSK company in the UK in 2010. In return, the UK company paid nearly £124 million in interest back to the Luxembourg subsidiary, by effectively removing that money from the UK company’s profits. The move meant that there was no money available to pay towards the 28% corporation tax.
In case of Northern & Shell, before 2009, some of the company’s subsidiaries in the UK had been lending each other money totalling £804 million without any obvious tax advantage. Northern & Shell then established a company in Luxembourg and transferred the loans there. Interest payments on those loans left the UK, leaving lower profits available for taxation by HM Revenue & Customs (HMRC).
HMRC could levy only 1% tax on Northern & Shell, which meant that the company safeguraded its profits. Otherwise, it would have had to shell down £6 million towards corporation tax.
Richard Brooks, a former investigator with HMRC who now writes for Private Eye satirical magazine, said the documents reveal detailed plots of tax evasion on a large scale with the full cooperation of the tax haven. “The company puts its money into Luxembourg and borrows it back. It just sends money round in a circle and picks up a tax break on the way”, he said.