Kellogg’s has warned that its profits could be hurt by the international drive against tax avoidance, which is targeting structures that benefit multinationals.
The US-based maker of Corn Flakes, Rice Krispies and Coco Pops is worried that attempts to close tax loopholes would lead to a “material” increase in its income tax bill.
The chancellor, George Osborne, promised last month that government measures against tax avoidance would raise £3.1bn for the public purse, including a so-called Google tax aimed at profits that are shifted abroad by multinationals to avoid payments to HM Revenue and Customs. The UK is targeting tax structures used by international companies as part of a broader campaign led by the OECD - the economic thinktank for developed nations - to limit tax avoidance and use of offshore tax havens.
The warning from Kellogg’s, first reported by the Sunday Times, is thought to be the first of its kind by a multinational and was contained in its latest annual report.
“Due to economic and political conditions, tax rates in various foreign jurisdictions may be subject to significant change,” the annual report said. It added: “Contemplated changes in the UK and other countries of long-standing tax principles if finalized and adopted could have a material impact on our income tax expense.”
In 2013, UK consumers spent £622m on Kellogg’s products, such as Crunchy Nut Cornflakes and Pringles crisps, buying more cereal per person than any other country in Europe.
According to the Sunday Times, Kellogg’s two UK subsidiaries paid corporation tax of £8.4m on declared profits of nearly £50m in 2013, but this was offset by a tax credit worth £11.8m, recorded by another UK-registered Kellogg company.
Kellogg’s has six companies registered in Luxembourg, which pay tax at a rate of 0.37%, according to the newspaper, compared with a headline rate of 20% in the UK. The Grand Duchy has been at the centre of a political storm, since the Guardian and other international media revealed that more than 1,000 businesses were benefiting from sweetheart deals that slashed their tax bills.
In response to these tactics, last December Osborne unveiled the diverted profits tax, better known as the Google tax, as he pledged to ensure that multinational businesses “pay their fair share”. The law, which came into force on 1 April, levies a 25% tax on profits by firms using “contrived arrangements” to divert profits from the UK.
Lobby groups representing a host of tech companies, including Apple, Amazon and Microsoft, have since begun a fightback against international plans to close tax loopholes, which they have complained are “riddled with fundamental flaws”.
Kellogg’s said it was a “responsible taxpayer” that worked within the tax laws of the countries where it made and sold food. The food manufacturer said it did not anticipate it would be affected by the UK’s diverted profits tax.
It added that the OECD’s reforms were ongoing: “We don’t know what, if any, the potential impact of this will be on our business and so we have to flag it up in our annual report as an uncertainty.”
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