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U.K.’s Biggest Companies Lower Tax Rate With Overseas Business

The biggest U.K. companies paid taxes at a lower rate for the fourth consecutive year, in part by garnering more profit overseas even as Starbucks Corp. (SBUX) and Google Inc. (GOOG) caused public outcry by avoiding levies in Britain.

The effective tax rate for FTSE 100 companies, the largest traded on the London Stock Exchange, fell to 24.5 percent from 35.8 percent in 2009, according to UHY Hacker Young, a London- based accounting company.

“Reductions in corporate taxes around the world -- including tax cuts in the U.K. -- have helped multinational companies reduce their tax payments,” the firm said in an e- mailed statement.

U.K. Business Secretary Vince Cable said in December that governments should coordinate across borders to make companies pay more tax. Cable’s recommendation came after members of Parliament lambasted , the world’s largest coffee-shop operator, as well as Amazon.com Inc. (AMZN) and Google Inc. for using complex accounting methods to reduce tax liabilities in the country.

“It’s called capitalism,” responded Google Chairman Eric Schmidt, while London Mayor Boris Johnson challenged the government to change the rules rather than blame the businesses. Starbucks, based in Seattle, volunteered to pay more taxes in Britain.

Part of the issue is that companies are being “given a hand by governments around the world,” according to Roy Maugham, head of taxes for UHY Hacker Young in London.

Google Bermuda

Google cut its 2011 rate almost in half, avoiding about $2 billion in worldwide income taxes, by shifting $9.8 billion in revenue into a Bermuda shell company, according to its filings.

“International competition to attract corporate tax revenues is as fierce as ever, with countries offering new enticements to businesses in the form of allowances, reliefs or tax cuts,” Maugham said in the statement.

Aggreko Plc (AGK), the world’s largest provider of mobile power supplies, boosted after-tax profit in the six months ended June 30 at a faster clip than revenue or operating profit as it reduced its tax rate to 26 percent from 28.5 percent.

SABMiller Plc (SAB)’s tax rate dropped to 27.5 percent in the six months through September, from 28.5 percent. The brewer of Grolsch and Peroni has received a declining proportion of revenue from Europe for three consecutive years, while Latin America is its biggest source of profit.

UHY Hacker Young said that while the headline U.K. corporate tax rate is set to reduce to 21 percent in 2014, some businesses have moved their headquarters from Britain after looking at the whole picture, including policies on profit realized in other countries. The U.K.’s system “remains uncompetitive,” it said.

Leaving Britain

More than 20 companies left the U.K. for tax reasons from 2007 to 2011, according to the accounting firm. The government will be encouraged by tax-law changes that prompted a few to return, including WPP Plc, the world’s largest advertising and marketing company, it said.

An “anti-abuse” rule that may be considered by the U.K. government to limit tax avoidance could drive more companies away, the accountants said.

WPP had moved to Ireland, while countries including Canada, Finland, Greece and New Zealand have more recently cut headline corporate tax rates and Italy is offering more tax relief, UHY Hacker Young said.

The averages used in the study are taken from effective tax rates reported by FTSE 100 companies in their latest annual reports or by their investor relations teams in the 12 months ended Oct. 31. The effective rate is the value of global tax charged as a percentage of global profit.

To contact the reporter on this story: David Risser in London at drisser@bloomberg.net

To contact the editor responsible for this story: Heather Harris at hharris5@bloomberg.net

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