AstraZeneca accused of tax avoidance
Company pays no UK corporation tax in 2014 after structure change
An investigation by the Guardian newspaper has revealed that pharmaceutical company AstraZeneca is using a multimillion-pound tax avoidance scheme.
The Guardian found that the scheme used $2.7bn (£1.8bn) of internal group loans routed through its Dutch subsidiaries.
The effect was that the company paid no corporation tax in the UK in the last financial year, despite having made global profits in 2013 and 2014 totaling $4.5bn.
The structure was set up after tax laws were relaxed in the UK. The scheme is legal and worked "partly by securing some UK tax deductions from the Dutch lending structure as well as by offsetting high running costs and investment at its UK operations and using other tax breaks, some relating to new medicine research and development" according to the Guardian.
Tax experts asked by the Guardian to review its findings said AstraZeneca’s scheme appeared to be "constructed solely as a way to avoid tax, and that the company could benefit from this in the future."
Richard Murphy, accountant, tax campaigner and co-founder of the Fair Tax Mark, said: “The structure only appears to exist for tax purposes, to try to secure a tax advantage.”
AstraZeneca dispute this telling the paper that it had not made savings from the scheme and was winding up the structure ahead of an anticipated tightening of international tax rules by the OECD.
It conceded its Dutch arrangements involved some tax planning but said the main purpose was providing financing for overseas acquisitions. Any related tax matters had all been approved by HMRC and the Dutch tax office, it added.
How the tax scheme works
"In April 2013 AstraZeneca set up its unusual Dutch lending operation.
The loan structure, which is within the law, centered around a type of Dutch co-operative, an unusual corporate entity first allowed in the mid-19th century to assist dairy farmers.
AstraZeneca’s co-operative is incorporated at the group’s Dutch offices, eight miles east of The Hague. Accounts for AstraZeneca Finance Coöperatief WA do not show signs of significant business activity: there are no staff on the payroll and it has modest operating costs.
Nevertheless the co-operative was packed with loans of $2.7bn from head office in the UK, and is charged interest of more than $140m a year.
Interest flows exploited differences between the way tax codes in the UK and the Netherlands apply to Dutch co-operatives. The result was that the two tax offices treated the interest as occurring on their own patch, both awarding huge tax breaks for the same payment.
In tax avoidance jargon, claiming a tax deduction twice on the same payment is called “double dipping”.
Under previous versions of HMRC’s anti-avoidance laws – known as the controlled foreign companies (CFC) regime – the tax benefit of a double dip could be pounced on by HMRC and neutralised. Since tax office powers were reduced, however, only about a quarter of the tax advantage can be clawed back."
From the Guardian's, 'Revealed: how AstraZeneca avoids paying UK corporation tax'
Previous tax troubles
This wasn't the first time the company had been embroiled in a tax scandal in 2010 AstraZeneca had agreed to pay more than £500 million to the UK Exchequer as a result of a dispute over ‘transfer pricing’, described as “a device which allows multi-national companies to lower their overall tax bill by making bigger profits in countries with lower taxation rates than they do in high-tax countries”.
Visit our tax justice section to read more about tax avoidance. Includes our list of companies score Ethical Consumer's worst rating for likely use of tax avoidance strategies.
This story has been added to our corporate database. The database powers all our live product guides, giving the score for each company on our rankings tables. Find out more about how we rate companies.