NGOs accuse Alliance Boots of avoiding $1.8 bln in UK taxes

Reuters

By Tom Bergin

LONDON, Oct 15 (Reuters) - A British charity and a labourunion accused Europe's largest pharmacy chain, Alliance Boots,of avoiding over 1.1 billion pounds ($1.76 billion) in UK taxsince 2008 and called on the government to change laws whichallow such tax planning.

Corporate tax avoidance has risen to the top of thepolitical agenda in the UK as Britons tire of austerity measuresaimed at tackling large public debt built up as a result of thefinancial crisis.

The UK government has backed international action to reducecorporate profit shifting but has resisted calls to amenddomestic rules which tax advisors say offer greater opportunityfor tax minimisation than tax systems in other large industrialcountries such as Germany, the United States and France.

A consortium led by private equity group Kohlberg KravisRoberts & Co. L.P. (KKR) and the drug distributor's billionaireexecutive chairman Stefano Pessina took Alliance Boots privatein 2007. Last year U.S. drugstore chain Walgreen Co bought 45 percent of the company.

Anti-poverty group War on Want and Unite, the UK's largesttrades union, published a report on Tuesday which said thatafter being delisted from the London Stock Exchange, AllianceBoots' owners loaded the company up with loans from affiliatesin low-tax jurisdictions.

These debts sent interest costs rocketing to 853 millionpounds in 2008, the year after the acquisition, compared to 42million pounds in the year to March 2007, said Nell Geiser, aresearcher at Change to Win, an advocacy group backed by U.S.labour unions, which co-authored the report.

The year before its leveraged buyout, Alliance Boots had aUK tax expense of 181 million pounds, but in the six years sincegoing private, rising interest payments turned healthy operatingprofits into tax losses, resulting in a cumulative net taxcredit of over 130 million pounds, the report said.

"Ministers have allowed corporations such as Boots and itsprivate equity owners to abuse the UK's tax system. It is timefor proper rules to make companies like Boots pay their fairshare," said John Hilary, executive director at War on Want.

Alliance Boots, which operates the Boots chain of pharmaciesthat dot main streets across Britain, said in a statement:"Alliance Boots conducts its business and organises its taxaffairs strictly in compliance with all applicable law(including legislation in the UK) and observes the higheststandard of good ethics."

KKR and Walgreen declined to comment.

There was no suggestion in the report that Alliance Bootshad engaged in any unlawful activity.

Interest on debt is tax deductible and the Organisation forEconomic Co-operation and Development (OECD), which advises itsmainly rich nation members on economic policies, said in areport in July that intra-company loans via tax havens were apopular method for shifting profits outs of countries where theywere made.

The OECD called on members to change their tax laws to stopthis kind of income shifting.

Many countries including Germany and the United Statesalready impose restrictions on the extent to which interestpayments can be deducted for tax purposes.

Britain allows all debt payments to be deducted from taxableincome so long as the total debt burden does not exceed agroup's total, worldwide borrowing level.

The report said Alliance Boots was heavily reliant ontaxpayer-funded health programmes for revenue and called on thegovernment to "consider excluding companies that do not pay anappropriate level of tax from consideration for publiccontracts".

But Heather Self, a tax partner at international law firmPinsent Masons said there was nothing wrong with companiesminimising their tax bills by taking large interest deductions.

She said that while the UK rules on debt were "relativelygenerous" to companies, they were "a result of policy decisionsmade by governments over a number of years."

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