Revealed: How AstraZeneca avoids paying UK corporation tax | Astra Zeneca

AstraZeneca, one of Britain’s biggest companies, is using a multi-million pound tax avoidance scheme in the Netherlands, set up months after the UK relaxed its tax laws for multinationals in 2013.

A Guardian investigation found the pharmaceutical giant created the scheme using $2.7bn (£1.8bn) in internal group loans channeled through its Dutch subsidiaries.

The company paid no UK corporation tax, although it made global profits in 2013 and 2014 totaling $4.5 billion. It was legally able to do this in part by obtaining certain UK tax deductions from the Dutch loan structure as well as offsetting the high running and investment costs of its UK operations and using other relief taxes, some related to the research and development of new drugs.

Tax experts invited by the Guardian to examine its findings said AstraZeneca’s scheme appeared to be designed solely as a way to avoid tax and that the company could benefit from it in the future.

But AstraZeneca said it had not realized any savings from the program and was liquidating the Dutch structure ahead of a planned tightening of international tax rules by the OECD.

Stephen Shay, a lecturer in law at Harvard Law School who has held senior tax positions with the US Treasury and testified as an expert in 2013 about Apple’s tax avoidance structures in the part of a Senate inquiry, said it was “difficult to say” how companies in the Dutch structure “have a real business purpose other than achieving the tax result”.

Each year in its annual report, AstraZeneca states: “We make a distinction between tax planning using artificial structures and the optimization of the tax treatment of commercial transactions and we only engage in the latter”.

AstraZeneca told the Guardian the promise held. He admitted his Dutch arrangements involved some tax planning, but said the main purpose was to provide financing for overseas acquisitions. All related tax matters have all been cleared by HMRC and the Dutch tax office, he added.

Explaining its decision to disburse $2.7 billion in loans through a Dutch structure, he said: “AstraZeneca has acted on UK legislation introduced…to give businesses greater freedom in managing financing operations abroad…

“The use of this UK government sponsored scheme for tax planning purposes produced no tax savings for AstraZeneca. In 2013 and 2014 the AstraZeneca UK group of companies was not profitable due to the expiring patents and continued investment in research and development of new drugs.

Independent experts said it was difficult to come to a final assessment of the value of the tax advantages of the Dutch avoidance structure, as it depended on AstraZeneca’s future ability to use certain tax credits it now held. “It’s not like [AstraZeneca] won’t get any benefit,” Shay said. “It’s only a question of the value of the benefit on a present value basis. You can’t say Astra doesn’t have an edge.

AstraZeneca’s Dutch structure was put in place less than five months after new rules came into force limiting HMRC’s powers to tackle tax avoidance by international companies.

Richard Brooks, former HMRC tax inspector, now a Private Eye reporter and author of The Great Tax Robbery, said: “It is clear from the accounts and responses of AstraZeneca companies to [the Guardian] that this scheme was designed to generate a tax advantage in the United Kingdom.

Richard Murphy, accountant, tax activist and author of The Joy of Tax, said: ‘The structure seems to exist only for tax purposes, to try to gain a tax advantage.’

AstraZeneca’s top tax accountant, Ian Brimicombe, served for several years on a Treasury committee to advise the government on changes to the law. Without an amendment, which came into effect nearly three years ago, the group’s avoidance structure would not have worked.

Osborne is expected to use a speech at the Conservative Party Conference in Manchester on Monday morning to highlight how the UK economy is reaping the benefits of the highly competitive tax regime he created.

A few hours later, in Paris, the long-awaited proposals for international tax reform from the Organization for Economic Co-operation and Development (OECD) targeting tax avoidance by multinationals will be published.

Senior OECD officials have warned that the current rules are being so abused – both by multinationals and by countries competing for investment – that they are close to breaking point.

But British diplomats, while backing many OECD reforms, have fought behind the scenes to protect prized tax policies that have helped make Britain a favorable environment for international business to locate.

Pascal Soriot, chief executive of AstraZeneca, was among more than 100 business leaders who signed an open letter in support of the Conservative Party’s tax policies during the general election campaign earlier this year. Soriot later said he did not intend to endorse any political party, but confirmed: “I support policies which strengthen a competitive tax environment and encourage investment in the UK.”

How the tax system works

In April 2013, AstraZeneca set up its unusual Dutch loan operation – an arrangement described as “highly contrived tax avoidance” by independent tax experts.

The loan structure, which complies with the law, was centered on a type of Dutch cooperative, an unusual legal person first authorized in the mid-19th century to help dairy farmers.

AstraZeneca’s cooperative is incorporated in the group’s Dutch offices, eight miles east of The Hague. AstraZeneca Finance Coöperatief WA’s accounts show no signs of significant business activity: there are no staff on the payroll and its operating costs are modest.

Nevertheless, the cooperative has received loans of $2.7 billion from the UK head office and has to pay interest of more than $140 million a year.

Interest streams exploited the differences between how the UK and Dutch tax codes apply to Dutch co-operatives. The result was that both tax offices treated the interest as occurring on their own turf, both giving huge tax breaks for the same payment.

In tax avoidance jargon, claiming a tax deduction twice on the same payment is called “double dipping”.

Brooks said: “Generating a double tax deduction for a single expense using a strange Dutch entity that a tax authority somehow sees as something completely different, looks like highly contrived tax avoidance. “

In previous versions of HMRC’s anti-avoidance laws – known as the Controlled Foreign Company (CFC) regime – the tax benefit of a double dip could be clawed back by HMRC and neutralized. However, since the powers of the tax administration have been reduced, only about a quarter of the tax benefit can be recovered.

• This article was amended on October 5, 2015 to clarify that AstraZeneca Finance Coöperatief WA must pay interest in excess of $140 million per year.