PAC accuses Shire and PwC over Luxembourg tax structure

PHARMACEUTICAL GROUP SHIRE and PwC have have been accused of “scamming the British people” over the company’s business structure by MPs in the Public Accounts Committee.

Shire’s head of tax Fearghus Carruthers was summoned before the committee alongside PwC’s head of tax Kevin Nicholson after the drug manufacturer was named by the International Consortium of Investigative Journalists as one of hundreds of businesses with structures centred on low-tax Luxembourg.

The investigation unearthed a cache of almost 28,000 documents describing tax deals struck with Luxembourg, showing the tiny EU state was facilitating more than 1,000 multinationals in tax avoidance activities. Those arrangements – which are entirely legal – were signed off by the Grand Duchy. The leaked documents primarily relate to clients of PwC.

The original investigation – carried out by 80 reporters across 26 countries found a Luxembourg unit of Shire – staffed by just two people – received more than $1.9bn (£1.2bn) in interest income from subsidiaries over the last five years, paying corporation tax of less than $2m over four of the years despite minimal overheads.
In a heated hearing, committee chair Margaret Hodge told the pair that “if decisions of substance [to Shire] aren’t taken in Luxembourg, to me it’s not just avoidance, it’s fraud”.

“It’s because of what you [Shire] do that we feel so offended by the way you scam the British people,” she added.

Both Carruthers and Nicholson refuted the claim, and told the committee the commercial purpose of Luxembourg structure was to reinvest cash “properly and efficiently”.

“Luxembourg encourages finance operations in the same way the UK encourages R&D operations,” Nicholson said. “These structures are multi-purpose and beneficial for things such as mergers and acquisitions.”

Hodge, though, was not convinced. “It’s hard to conclude that this represents anything other than tax avoidance on an industrial scale. You have put in place ludicrously complicated webs of intra-company loans and royalty payments,” she claimed.

Such activities will be impinged on following the introduction of the Diverted Profits Tax – popularly dubbed the ‘Google tax’ – which will apply a 25% levy to profits generated in the UK by multinational businesses.

It will be incorporated in the draft 2015 Finance Act, which is to be published on Wednesday (10 December) with accompanying guidance on how the new rules will operate.