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Anorak | But Boots Isn’t Avoiding Any Tax So What Are They Blathering About?

But Boots Isn’t Avoiding Any Tax So What Are They Blathering About?

by | 18th, October 2013

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IT appears that the next part of the increasingly creaky tax campaign is to go after Boots:

 Alliance Boots, which became Britain’s biggest private equity buyout in 2007, could have received UK tax bills of more than £1.1bn over the last six years, had colossal interest payments on the group’s billions of pounds of borrowings not depressed the chemist and retail group’s UK profits, according to tax campaigners.

A report, commissioned by Unite, War on Want and US union group Change to Win, found that Alliance Boots generated UK taxable profits, before interest costs, of £4.5bn between 2008 and 2013. But it also incurred financing costs of £4.2bn over the same period, reducing its UK taxable profits to just £313m.

That’s a bit weird. For there’s no such thing as taxable profits before interest. Interest is an expense of the company so therefore it gets taken off gross profits before they become taxable profits.

Given that this is what they’re complaining about it would be useful for them to have understood the point really.

But much more important than this is the fact that we’ve no evidence at all that tax collected was lower under theis arrangement than without it. As background, yes, it’s true that Boots borrowed lots of money. They’ve had to pay the interest on that money as a result. This does indeed reduce the profits they report and thus the corporation tax they pay on their reported profits.

However, then interest itself is then taxed when it’s in the hands of the people that receive it. So, how much tax was paid by these people? We’ve no idea, none at all actually.

However, if it was rich people who lent the money then they will be paying income tax at 45% on that interest. This is rather higher than the 24% corporation tax that Boots would have been paying. If it was poor people then they would be paying 20% income tax on that interest. Fair enough, that’s less tax, but there aren’t many poor people out there who buy corporate bonds. And finally, if it’s other companies that lent the money then those companies will pay normal corporation tax on their profits: profits that obviously include interest received.

In the end there’s no evidence at all that the total tax bill will have been lower and it might well have been higher.

So, what the fuck are they all complaining about?



Posted: 18th, October 2013 | In: Money Comment | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink