Time for the EU to tackle Luxembourg over tax

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As showbusiness, the public accounts committee’s latest session on tax avoidance worked splendidly.

Kevin Nicholson, head of tax at PricewaterhouseCoopers, and Fearghus Carruthers, head of tax at FTSE 100 group Shire, looked suitably ridiculous as they tried to argue that the appeal of Luxembourg is not all about reducing a company’s tax bill.

The former quibbled over the use of terms such as “schemes” and “mass marketed” to describe tax plans for hundreds of clients that have a common theme of structuring inter-company loans through the grand duchy.

Carruthers was obliged to argue that employing two people in Luxembourg, earning a combined total of €135,000 (£106,000) a year, to manage $10bn (£6.4bn) of loans between Shire entities represented a substantive presence in the country.

Yet it would be hard to say the committee landed a killer blow on either witness. “I am not here to defend the Luxembourg tax regime,” said Nicholson at one point. “Luxembourg is a member of the European Union. If politicians don’t like the way Luxembourg operates in the EU, change it.”

That is reasonable advice. What the mass of leaked PwC documents has revealed (or confirmed) is that a tiny EU state has been filling its coffers at the expense of fellow member states. The scale is astonishing – but it has happened with the complicity of EU partners.

There is, of course, no harm in forcing representatives of PwC and Shire to endure a sweaty afternoon in Westminster.

It is illuminating to hear the boss of the country’s biggest tax practice fail to explain how cash flows within a labyrinth of inter-connected companies.

But the tale always ends with astonishment that Luxembourg could have been allowed to rubber-stamp so many sweetheart deals in the name of tax competition.

Belatedly, cash-strapped western governments are being forced to acknowledge the extent of legal tax avoidance by multinationals.

Work at the OECD to find workable rules to address “base erosion and profit shifting” continues. George Osborne is making a small additional effort with his modest “Google tax”.

But the big EU powers could help themselves by reading the riot act to Luxembourg rather than adopting its former long-serving prime minister as president of the European commission.

If the election of Jean-Claude Juncker is a true reflection of the appetite for reform within the EU, Margaret Hodge and her committee should prepare themselves for many more frustrating afternoons.

M&S: too old for teething

It’s never straightforward with Marks & Spencer. The backdrop in recent months has been optimistic – clothing sales were improving at the last count, apart from during warm October; the share price was once again heading towards 500p as investors salivated over the sums of cash that might flow after three years of heavy spending on infrastructure. Now comes a pre-Christmas online delivery headache.

It’s impossible to tell at this stage if the technical problems at the vast Castle Donington warehouse, one of the fruits of that investment, are serious enough to spoil M&S’s pre-Christmas sales.

Shifting standard delivery times to “up to” 10 days, as opposed to the standard three to five days, will annoy customers. It is less clear if shoppers will be deterred from ordering a full two weeks before Christmas. If M&S can restore a normal service within a day or two, the damage could yet be slight.

The deep reason why M&S finds itself in a pickle is that it is trying to catch up in the world of online deliveries in a hurry. Arch-rival Next was given a head-start of about a decade.

That is not the fault of M&S chief executive Marc Bolland, but he would be wise not to use the line about teething problems.

That phrase was deployed in the summer to explain the shiny new website’s slow start. Shareholders, whose worry was reflected in Monday’s 3% fall in the share price, just want a confident statement that the cock-ups are over.

Southern discomfort

On the day it named its spin-off unit South32, BHP Billiton’s share price headed south by 37p, thereby (just) avoiding a neat symmetry.

As these things go, South32 seems a decent choice. It is not an anonymous collection of initials or cod Greek or Latin. Somebody has bothered to think of a label that loosely connects the jumble of mines that BHP wants to live without.

They are mostly in South Africa and Australia, you see, and the 32nd southern parallel runs across both countries.

OK, it’s not genius, but it’s vaguely memorable, and it deflects attention from the fact that the greater portion comes from the old South Africa-based Billiton.

Some shareholders may be disappointed that BHP hasn’t managed to find a buyer for some or all of these aluminium, nickel, manganese, coal and silver mines.

There’s still time in theory, of course, but one suspects the South32 demerger will proceed on schedule next year.

The big boys prefer very big deals. Smaller players would struggle to get funding to pay $15bn-ish to buy South32.

Powered by Guardian.co.ukThis article was written by Nils Pratley, for The Guardian on Monday 8th December 2014 23.29 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010


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