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Alliance Boots maintains clean bill of health in face of tax accusations

November 2013

Alliance Boots, parent group of the Boots pharmacies and shops prominent in UK high streets for generations, is now accused of using a legal loophole to dodge £1.1bn ($1.78bn, €1.3bn) in tax.

Critics claim Alliance Boots is avoiding 95 per cent of its UK tax liability by offsetting the interest on £9bn ($14.6bn, €10.6bn) borrowed for its 2007 buyout.

Alliance Boots, the health and beauty group resulting from the merger of the original Boots company and the pan-European wholesale and retail pharmacy Alliance UniChem, was bought in 2007 by the private equity business Kohlberg Kravis Roberts and the Italian billionaire Stefano Pessina.

The buyers paid £12.4bn, of which £9bn was loaned by investment banks, including Deutsche Bank, JPMorgan Chase, Bank of America and Royal Bank of Scotland.

After the purchase Alliance Boots moved its headquarters from Nottingham in the UK to Zug, Switzerland, amid protests that the transfer was made solely to reduce tax liabilities. Last year Walgreens, the largest US drug retailing chain, bought 45 per cent of the company.

The group’s annual revenue is more than £22bn and in the past six years its operating profits have exceeded £5bn, but its accounts show an overall £130m tax credit.

The company insists it complies with UK law, paid the same amount of UK tax as it would have if it had stayed, and even paid more tax last year than before the buyout.

However, the UK’s largest trade union Unite and the anti-poverty charity War on Want claim that without the loan payments Alliance Boots would have made £4.2bn more in profits in the UK, increasing its corporation tax bill by £1.1bn.

Unite maintains this revenue would have paid for 78,000 nurses, two years of medicine prescription charges, or 5.2 million emergency ambulance calls.

Len McCluskey, Unite’s general secretary, said: “The revelation that yet another high street name fleeces Britain, taking work from our NHS while avoiding tax responsibilities, will leave taxpayers furious.”

He said the company had “abused the trust of the British public” and should be denied public service contracts until it “comes clean” on tax.

John Hilary, War on Want’s executive director, complained: “Ministers have allowed corporations such as Boots and its private equity owners to abuse the UK’s tax system.”
Another legal loophole, used by Apple, Microsoft and Google, is to be plugged in the Irish Republic.
At present companies can pour profits into Irish subsidiaries, or “ghost companies” that have no tax residency in the country.
Apple and Google, for example, place funds in their Irish subsidiaries and then switch them as deductible royalties to their tax-resident subsidiaries in Bermuda, which is a zero-tax jurisdiction. This manoeuvre is called the “double Irish”.
The Dublin government aims to stop the practice by making it illegal for companies in its territory to have no residency.

In May a US Senate committee inquiry claimed Apple had avoided tax on $44bn (£27bn, €32bn) during the past four years by declaring its companies registered in the Irish Republic as not resident anywhere. Apple, it said, had used “a complex web of offshore entities” to avoid paying billions of dollars in taxes.

Chief executive Tim Cook responded that Apple had not acted illegally and had paid “every single dollar” of due tax. He said the company had paid more than $6bn last year.

Finance observers maintain the Irish proposals will be ineffective. Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, a London-based global group, predicted that companies would still be able to nominate any country for tax residence, including a zero-tax jurisdiction such as Bermuda.

UK & NI Ireland | Tax Avoidance


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