Alliance Boots ‘transactions may have enriched chief at taxpayers' cost'

28 November 2013 - 9:54am
Press release
  • OECD complaint details more than £400 million of related party deals
  • Complaint follows weeks after report cited over £1 billion tax avoidance
  • As the parent company of Britain's largest high street chemists Boots opens its pharmacist convention in the tax haven Monaco, new evidence today emerges about the firm's related party transactions, involving more than £400 million.

    These deals appear to have enriched Alliance Boots executive chairman Stefano Pessina at the expense of the company and UK taxpayers.

    New research by the anti-poverty charity War on Want and the US labour federation Change to Win has triggered a complaint today with the Organisation for Economic Co-operation and Development.

    The complaint also comes only hours before the Overseas Territories ministerial summit ends in London, amid growing anger over companies dodging revenues by using tax havens.

    It alleges that Alliance Boots violated the OECD Guidelines for Multinational Enterprises through its inadequate disclosure about the insider transactions and its avoidance of tax by apparently paying out interest to related entities rather than treating those payouts as taxable dividends.

    The complaint details how two Irish subsidiaries of a Luxembourg-based finance company, apparently controlled by Pessina, bought more than £220 million of Alliance Boots' debt.

    The subsidiaries funded the purchase of the debt by issuing “profit participating notes” that were bought by Alliance Boots itself, thus creating a circular relationship in which the company appears to have funded the purchase of its own debt by a third party.[1]

    When Pessina's related companies sold the debt back to Alliance Boots this year, they likely profited handsomely, retaining the majority of the returns generated by significant appreciation in the market value of the debt.

    Alliance Boots' 2007 buyout was funded with more than £9 billion of debt, enabling massive interest deductions in Britain that let the company avoid more than £1 billion in corporation tax, as detailed in the report Alliance Boots & The Tax Gap, published last month by War on Want, Change to Win and the union Unite.

    The debt used to fund this deal was packaged and securitised as “collateralised loan obligations,” which were sold by banks to private investors.

    War on Want executive director John Hilary said, “These transactions demonstrate a failure of corporate governance and abuse of the tax system that is unconscionable from one of Britain's largest corporations.”

    The allegations in the complaint come at a time when corporate disclosure and tax avoidance are the subject of debate and government scrutiny.

    The recent House of Lords report on tax avoidance called for large companies to disclose their tax returns publicly and implement strong corporate governance regimes to “help to curb tax avoidance and other destructive practices.”

    War on Want and Change to Win seek mediation to bring concrete reforms of the company's governance, tax and disclosure procedures to align them with the Guidelines' requirements.


    NOTES TO EDITORS

    [1] Profit participating notes are debt securities where the payout depends on the issuer's profits.

    Alliance Boots & The Tax Gap
    http://www.waronwant.org/campaigns/tax-justice-now/18010-boots-billion-pound-tax-dodge-report

    House of Lords report on tax avoidance
    http://www.publications.parliament.uk/pa/ld201314/ldselect/ldeconaf/48/48.pdf


    CONTACT

    War on Want media officer Paul Collins (+44) (0)20 7324 5054 or (+44) (0)7983 550728


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