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Shire drawn into Luxembourg tax haven exposé

Firm is one of 340 companies identified in report by ICIJ

Shire BasingstokeShire has been implicated in a long-running probe into the tax regime in Luxembourg, which allows companies to side-step corporate taxes in neighbouring countries.

A report by the International Consortium of Investigative Journalists (ICIJ) claims hundreds of corporations have secured "secret deals" with Luxembourg that have resulted in billions of dollars of tax savings, even though the firms involved have a minimal presence in the country.

Shire is one of 340 companies identified in the report as moving profits to the tax haven, says the ICIJ, which also claims one of the big four accountancy firms - PricewaterhouseCoopers (PwC) - played a key role in setting up the "murky" offshore financial system.

In a scenario reminiscent of the tax-inversion acquisition deals that have prompted a clampdown by the US Treasury, the ICIJ maintains that PwC "helped come up with financial strategies that feature loans among sister companies and other moves designed to shift profits from one part of a corporation to another to reduce or eliminate taxable income."

PwC rejected any suggestion of wrongdoing in a statement, claiming the ICIJ's investigation was "based on partial, incomplete information dating back four years or more, which was illegally obtained."

Investigations into Luxembourg's tax activities certainly stretch back several years, and this is not the first time that a pharma company has been implicated in the practice.

A BBC Panorama investigation in 2012 revealing that GlaxoSmithKline (GSK) avoided paying tax in the UK by setting up a tiny company in Luxembourg which lent some £6.3bn to a UK subsidiary. In return the UK unit paid around £124m in interest to the Luxembourg company, deleting the money from the UK firm's profits. The move reportedly reduced GSK's tax rate on the money from 28% to 0.5%.

In the latest probe, it is revealed that a Luxembourg unit of Shire has received more than $1.9bn in interest income from other group companies in the last five years, but paid corporation tax of less than $2m over four of the years "despite minimal overheads," says the ICIJ, citing an article in The Guardian.

The UK-listed pharma company - which is headquartered in Ireland - told the newspaper it has "a responsibility to all our stakeholders to manage our business responsibly; this includes managing our tax affairs in the interest of all stakeholders."

Other pharma companies appearing in an ICIJ database of leaked documents - related to tax rulings that have been approved by Luxembourg officials - include Abbott, Covidien, EUSA Pharma (now Jazz Pharmaceuticals), GE, GSK, Mylan, Teva and Warner-Chilcott.

The exposé comes at a time when national politicians - including UK Prime Minister David Cameron - have started to talk about clamping down on corporate tax avoidance, although it is hard to see how this can be achieved whilst Luxembourg remains amenable to these practices.

UK Chancellor George Osborne is due to reveal measures to prevent companies hiding profit offshore next month, while the European Commission (EC) is also putting the practices under scrutiny and has launched investigations into the tax affairs of Amazon and Fiat.

Article by
Phil Taylor

7th November 2014

From: Regulatory



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