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Tonight, the secret tax deals some of our best known firms would

:00:07.:00:17.
:00:17.:00:23.

rather you didn't see. Is there anyone there from Northern and

:00:23.:00:26.

Shell in this building because the sign is up here? This is the

:00:26.:00:29.

address they give. Yes, it's definitely there. In a joint

:00:29.:00:32.

investigation with French TV - the UK companies making massive tax

:00:32.:00:35.

savings in a tiny European State. I've never seen anything like this

:00:35.:00:38.

before, setting out in raw detail how a tax avoidance scheme works.

:00:38.:00:40.

And the accountants, advising political parties on taxation who

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devised the deals. It comes in the wake of one of the most talked

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about Budgets in years. I regard tax evasion and indeed,

:00:48.:00:53.

aggressive tax avoidance as morally repugnant.

:00:53.:00:56.

The Chancellor is promising a new law to crack down on tax avoiders.

:00:56.:01:00.

Will it work? It's going to be used to condone tax avoidance rather

:01:00.:01:05.

than to condemn tax avoidance. The Government says we're all in

:01:05.:01:08.

this recession together, but is it giving a green light to big

:01:08.:01:18.
:01:18.:01:35.

Welcome to Luxembourg. I'm trying to find some Luxembourg cuisine. A

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tiny country at the heart of Europe. A million people visit every year.

:01:40.:01:50.

This is a Luxembourg speciality. It's a type of champagne. So what's

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it got to offer? Ask the capital's mayor. We have the Schleck brothers.

:01:58.:02:03.

Who won the Tour de France. Cyclists that's OK. Very, very nice.

:02:04.:02:13.
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Luxembourg is home to 500,000 people. It's the proof that small

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can be beautiful. But its biggest attraction is not the food and wine.

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Luxembourg has a reputation as a tax haven. Thousands of companies

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have their offices here. Their tax affairs hidden behind impenetrable

:02:22.:02:25.

codes of confidentiality. Until now. We've got thousands of pages of

:02:25.:02:27.

documents revealing the secret tax deals of hundreds of companies,

:02:27.:02:37.
:02:37.:02:40.

many world famous multinationals, all negotiated with the taxman here.

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They were leaked to a French journalist and he agreed to share

:02:43.:02:48.

them with us. The documents involve the most

:02:48.:02:52.

sensitive information for all these companies. The profits, how they

:02:52.:02:55.

move the profits around the world and how they're going to pay their

:02:55.:03:00.

taxes. It's unprecedented. I've never seen

:03:00.:03:03.

anything like this before, setting out in raw detail how a tax

:03:03.:03:06.

avoidance scheme works for the benefit of a tax authority that's

:03:06.:03:12.

facilitating it. That's the beauty of it. We're seeing really with

:03:12.:03:15.

these, for the first time, exactly how companies avoid tax through a

:03:15.:03:20.

jurisdiction that wants to help them do it.

:03:20.:03:23.

Richard Brooks writes for Private Eye magazine but used to be an

:03:23.:03:27.

investigator for Her Majesty's Revenue and Customs. The documents

:03:27.:03:32.

are complex and technical. Richard has agreed to help me get my head

:03:32.:03:37.

round some of them. If I lend you �10 with no interest, that would be

:03:37.:03:47.
:03:47.:03:49.

a zero coupon bond. Really? we've covered the zero, the coupon

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and the bond. Are you getting this? The convertible bit is important as

:03:53.:03:58.

well because. The bond is convertible into shares. I'm lost,

:03:58.:04:01.

I'm still owing someone tenner and someone is owing me a tenner. The

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language used might be difficult to understand, but the end result

:04:04.:04:09.

isn't. It's fairly straightforward. It's to move profits from the

:04:09.:04:13.

country where they are taxed at a normal tax rate which might be 26%

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or 28%, the kind of levels the UK has, to a country or a territory

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that has much lower tax rates, where they may be taxed at less

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than 1%. So who's been getting a tax deal? It might not look much

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but this is the Luxembourg office of one of the UK's most successful

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multinationals. GlaxoSmithKline, the pharmaceuticals giant. The

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company is run from corporate headquarters 300 miles away in

:04:47.:04:55.

London. We've discovered that it ha been avoiding tax on some its multi

:04:55.:05:00.

billion pound profits. Thanks to Luxembourg and its enticing tax

:05:00.:05:08.

regime. Now with the help of these secret documents we can tell you

:05:08.:05:17.

how they did it. For GSK, it was about reducing profits in the UK,

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which were then taxable at 28% while at the same time taking

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advantage of Luxembourg's extremely generous tax breaks. It required

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some clever tricks, all legal of course. GlaxoSmithKline is based in

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the UK. In 2009, it opened a new subsidiary in Luxembourg. The

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following year that subsidiary lent �6.34 billion to a GlaxoSmithKline

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company in the UK. In return, the UK company paid nearly �124 million

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:05:57.:05:58.

in interest back to Luxembourg. So that's �124 million gone from the

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UK company's taxable profits so no longer available to the UK taxman.

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And the financial magic didn't end there. If the transaction is big

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enough, the Luxembourg taxman will agree, upfront, an extraordinary

:06:18.:06:27.

deal. Tax, effectively of less than 0.5% of that �124 million. Not bad

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:06:37.:06:39.

considering it would have been taxed at 28% in the UK. So that

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meant the taxman in Luxembourg only took around �300,000, leaving

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GlaxoSmithKline with a potential saving in UK corporation tax of �34

:06:45.:06:52.

million. Magic. That was year one. The plan was do the same thing all

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over again in 2011. And it was all approved here at the tax office in

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Luxembourg. Astonishing, isn't it? This rather non-descript building

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is the centre of what goes on here. This is where the deals are done

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which help make this place so desirable for business.

:07:15.:07:25.
:07:25.:07:26.

Well, there's an unholy alliance here. There's certainly the

:07:27.:07:29.

multinationals that want to reduce their tax bills without incurring

:07:29.:07:32.

any real economic cost. There's a country within the European Union

:07:32.:07:36.

that is exploiting its position as a member of the club to say come

:07:36.:07:39.

here and use us to avoid your tax bills back home. And there's the

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advisors that are more than happy to do it to help them to do it.

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So just who was advising the companies in our documents? Price

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Water House Coopers or PwC. One of the four giants of corporate

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accounting. They are the biggest tax advisors

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to multinational corporations in Britain and they are extremely well

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connected within Government and within the opposition as well.

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Over the last few years, they've given more than �1 million worth of

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advice to both the coalition parties and Labour. From their

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Luxembourg office, they devised all the tax deals in our documents. Tax

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avoidance or what most people call tax dodging is not illegal. But is

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it fair? Absolutely without a shadow of a doubt, legal. I'm still

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able to ask the question, is this acceptable? This is purely

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artificial structuring which is designed to undermine the tax

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revenues of the UK. Last year companies paid just over

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�42 billion in corporation tax, around 10% of the Exchequer's total

:08:49.:08:59.

revenue. Even so, tax avoidance by big business is reckoned by the

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revenue to be �1.2 billion. Tax investigators say it could be five

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times as much. What my members see every day is some large businesses

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are managing to avoid paying their fair share of taxes which means

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that everyone else has to pay more tax. That doesn't seem very fair.

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It doesn't seem very ranl. -- reasonable.

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Just over half of the biggest 100 companies listed on the London

:09:26.:09:30.

Stock Exchange have subsidiaries in Luxembourg.

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GSK is just one of them. And remember that magic formula, get

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some of your profits off shore in a place like Luxembourg and reduce

:09:41.:09:49.

your UK tax bill. But there was a big problem for big

:09:49.:09:56.

business. UK tax law. And it is controlled by foreign companies

:09:56.:10:01.

rules. These laws that say if you control a company in a tax haven

:10:01.:10:05.

and divert profits into it, we will still tax the profits of that

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company. Go but two corporate giants,

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Vodafone and Cadbury Schweppes had other ideas. They argued that the

:10:13.:10:18.

rules breached European law by limiting economic freedom.

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. It led to battles being fought at the European Court in Luxembourg

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and the High Court in London. By the time Vodafone's case got here

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in 2008, it looked like the rules were dead in the water. But the

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judge said the taxman couldn't examine the company's books.

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The accountants PDWC were quick to sell this as an opportunity. Our

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secret documents reveal that afterwards, they devised a tax deal

:10:52.:11:00.

for another major UK company. Northern and Shell. You probably

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won't have heard of it, but you will know some of the companies it

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owns like Express Newspapers and Travel Five. The man at the top is

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Richard Desmond. His companies also got an office in Luxembourg. It is

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a little tricky to find. That's number 11 and number 12, we are on

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the right street so we will just see where this takes us.

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Here we have it. Number 17. This looks like a stamp shop!

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Here we go, the fifth floor Northern and Shell.

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Hello. Hello, how are you? I'm fine.

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Good. Good. I'm looking to speak to someone from Northern and Shell.

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Right. I don't know who this is. Sorry, my name is Darragh McIntyre,

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:12:19.:12:20.

I am a a a reporter with the BBC. This office became the proud owner

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of of �880 million of company debt. I don't work for Northern Shell.

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This is a different office. Is there anyone from Northern and

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Shell because the sign is up here and this is the address they give?

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Yes, it is definitely there. I am not aware of that.

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This is the address on their company accounts. Our documents

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show that before 02 2009 Northern and Shell companies in the UK had

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been lending each other money. �804 million. There was no obvious

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tax advantage to be had on these transactions in the UK.

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So Northern and Shell looked to Luxembourg where it set up a

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company and transferred the UK loans there.

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Interest payments left the UK, leaving lower profits available to

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the UK taxman. In Luxembourg, the same profits got the magic tax

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breaks. The end result - it looked like Northern and Shell had saved

:13:27.:13:37.
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The deal was so sweet, they did it again - this time creating a

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potential loss to the UK taxman of over �9 million. But you're

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definitely not Northern & Shell? Hello? Our friend has gone.

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The company puts its money into Luxembourg and borrows it back. It

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just sends money round in a circle and picks up a tax break on the way.

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Just the sort of thing those rules on taxing foreign profits should

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have been able to deal with. So you would have expected that to end up

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in negotiations with tax officials? There shouldn't have been any

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negotiation about it. I mean, that should have been a straightforward

:14:16.:14:26.
:14:26.:14:31.

I'm now going to try to speak to the main man, Richard Desmond. I'm

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hoping he's going to be up there. We were told the Northern & Shell

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chairman was abroad. Richard Desmond didn't want to be

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:14:51.:14:56.

interviewed, but his company later told us... That the Board considers

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it entirely proper that Northern & Shell endeavours to structure its

:14:58.:15:01.

tax affairs in a tax efficient manner it says it has an open,

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honest and positive working relationship with HM Revenue and

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Customs and that where there are differing legal interpretations

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between ourselves and tax authorities, we will engage in

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proactive discussion to bring matters to as rapid a conclusion as

:15:09.:15:19.
:15:19.:15:21.

possible. PricewaterhouseCoopers say that all their advice and

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assistance is given in accordance with UK and European tax laws.

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Their client relationships are strictly confidential and they

:15:26.:15:29.

cannot comment on individual cases. And it says it provides limited and

:15:29.:15:35.

fully disclosed technical support to the main political parties.

:15:35.:15:38.

By 2010, more than 150 companies were in dispute with the taxman

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over whether they should pay UK tax on their foreign profits. But the

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tide was turning. The Court of Appeal ruled that the taxman could

:15:49.:15:57.

go after the foreign profits of UK companies after all. Rather than

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pursuing companies through the courts, the taxman started doing

:15:59.:16:04.

deals. But were the companies paying enough? Parliament didn't

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think so. We asked the National Audit Office

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to undertake an inquiry into the settlements that HMRC were reaching

:16:13.:16:21.

with the corporations. There's big money at stake here. In fact both

:16:22.:16:25.

the National Audit Office and HMRC say that up to �25 billion could be

:16:25.:16:35.
:16:35.:16:36.

One of the deals that troubled the MPs was Vodafone's. The company had

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set aside �3.1 billion in case it lost the dispute. In 2010, Vodafone

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eventually settled with the taxman for less than half that amount. It

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was suggested in Parliament that Vodafone actually owed much more,

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�6 billion. Her Majesty's Revenue and Customs described that figure

:16:56.:16:59.

as absurd, but refused to discuss how they settled the case, citing

:16:59.:17:07.

taxpayer confidentiality. Because of the veil of secrecy

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surrounding all these decisions around tax - and we're talking big

:17:10.:17:13.

numbers here - lack of transparency means that we, on behalf of the

:17:14.:17:16.

taxpayer, cannot be certain that this was a good, honest, proper

:17:16.:17:26.
:17:26.:17:30.

Vodafone told us that it complies with the law in all the countries

:17:30.:17:33.

where it operates and that it discloses all relevant facts to all

:17:33.:17:39.

relevant tax authorities. Her Majesty's Revenue and Customs says

:17:39.:17:41.

large business settlements are carried out according to the law,

:17:41.:17:50.

clear codes and practices. We know Vodafone did a deal, but who else?

:17:50.:17:53.

Pharmaceuticals giant GlaxoSmithKline did one, too. We

:17:53.:17:58.

know because their man in Luxembourg says so. I've just

:17:58.:18:03.

spoken to the manager of GlaxoSmithKline Luxembourg. He

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tells me a deal was made with the taxman back in 2011. GSK refutes

:18:08.:18:18.
:18:18.:18:22.

any suggestion of wrongdoing. It told us... Both the UK and

:18:22.:18:26.

Luxembourg authorities are agreed that we have paid all the taxes

:18:26.:18:30.

that are due. We take very seriously our duty to pay tax. But

:18:30.:18:34.

we have a duty to our shareholders to be financially efficient, so

:18:34.:18:38.

that we can maximise returns to investors and fund for the

:18:38.:18:42.

development of future medicines. GSK agreed to close down the �6.34

:18:42.:18:46.

billion loan operation through Luxembourg. We asked how much tax

:18:46.:18:53.

they had to pay. But they didn't answer that question.

:18:53.:18:56.

When we are talking about the tax affairs of large corporations, they

:18:56.:19:05.

should be totally open, totally So what does the Government plan to

:19:05.:19:12.

do about tax avoidance, to make every tax penny count?

:19:12.:19:15.

I regard tax evasion - and indeed aggressive tax avoidance as morally

:19:15.:19:22.

repugnant. So not just evaders, you'd be forgiven for thinking that

:19:22.:19:24.

the Chancellor's Budget speech was bad news for tax avoiders, too,

:19:25.:19:27.

like those companies using legal ways to wriggle out of paying the

:19:27.:19:37.
:19:37.:19:38.

taxman. Big UK companies involved in tax

:19:38.:19:40.

avoidance schemes, would you in theory find such schemes morally

:19:40.:19:44.

repugnant? Do we think that companies and individuals should

:19:44.:19:47.

pay the tax that they are legally required to do, consistent with the

:19:47.:19:50.

way in which Parliament has legislated and with the intention

:19:50.:19:56.

of Parliament? Then yes, we think companies and individuals should

:19:56.:20:00.

pay that tax. This government is determined... Is it morally

:20:00.:20:06.

repugnant? Well, yes, but... Yes, absolutely. Yes. But that depends

:20:06.:20:12.

on, you know, exactly what a company's doing.

:20:12.:20:15.

The Government says it is committed to introducing a new anti-avoidance

:20:15.:20:19.

rule. They say it will only work if it focuses on the most serious

:20:19.:20:23.

cases of abuse. But the union which represents senior tax investigators

:20:23.:20:31.

It will only catch the really most objectionable case, and the vast

:20:31.:20:34.

majority of avoidance will not be caught by it. And indeed, anything

:20:34.:20:37.

that is not caught by this will now be treated as reasonable tax

:20:37.:20:41.

planning. It's rather as if you legalised murder and then said that

:20:41.:20:51.
:20:51.:20:51.

So where does all this leave the companies in our documents and

:20:51.:20:56.

their Luxembourg tax deals? Remember those "controlled foreign

:20:56.:21:00.

companies" Rules, the ones meant to stop multi-nationals avoiding tax?

:21:00.:21:07.

Well, the Chancellor has relaxed them. Deals designed to avoid tax,

:21:07.:21:12.

by draining profits out of the UK should be caught by the taxman. But

:21:12.:21:14.

from now on, profits created by the overseas subsidiaries of UK-based

:21:15.:21:24.
:21:25.:21:27.

companies should face little or no That's good news for another big UK

:21:27.:21:34.

company - Pearson, which owns the Financial Times and Penguin Books.

:21:34.:21:37.

Again, a company with subsidiaries in Luxembourg and a dispute with

:21:37.:21:46.

the UK taxman. I'm looking for Boulevard Grande Duchess Charlotte.

:21:46.:21:50.

Here's what Pearson were doing, according to their company accounts.

:21:50.:21:53.

In 2004, Pearson in Luxembourg were lending almost $1.5 billion to its

:21:53.:21:59.

operation in America. Over seven years, almost $500 million in

:21:59.:22:05.

interest flowed back to Luxembourg. Because of a loophole in the old

:22:05.:22:08.

controlled foreign companies rules, profits appeared to escape UK

:22:08.:22:12.

taxation. But in 2008, that loophole was closed, so profits

:22:12.:22:17.

could be taxed after all - something Pearson well knew. No

:22:17.:22:21.

sign of their name, though. By 2009, company accounts revealed that �26

:22:22.:22:28.

million in tax had not been paid. The reason? Pearson, like Vodafone

:22:28.:22:30.

before it, believed that the controlled foreign companies rules

:22:30.:22:40.
:22:40.:22:41.

breached European law, and so they No brass plate but just a copy of

:22:41.:22:47.

the Financial Times. We asked if they paid up. But they wouldn't

:22:47.:22:51.

tell us. They did say that Pearson pays all tax legally required in

:22:51.:22:55.

all jurisdictions in which it is subject to tax. And it

:22:55.:22:57.

categorically refutes any suggestion that it "refused to pay"

:22:58.:23:03.

any tax for which it was legally liable. Now that the Chancellor

:23:03.:23:06.

only intends to tax the UK profits of big companies, that Pearson

:23:06.:23:08.

scheme involving America and Luxembourg would probably face

:23:08.:23:18.

little or no tax. Those changes are effectively

:23:18.:23:21.

exempting a whole range of income that is moved into tax havens by

:23:21.:23:28.

British-controlled companies. They will be taxed far more lightly, if

:23:28.:23:38.
:23:38.:23:40.

at all, than they were under the No wonder it was smiles all round

:23:40.:23:47.

when big business got together with government last month.

:23:47.:23:50.

The tax regime in this country is now competitive with virtually

:23:50.:23:54.

every country in the world. There is no better place from which to

:23:54.:24:00.

run a multinational corporation in tax terms. I believe that fervently,

:24:00.:24:10.
:24:10.:24:13.

and it's the result of 10 years of And among those doing that hard

:24:13.:24:16.

work, GSK and Vodafone, two of the companies who had been in dispute

:24:16.:24:26.

with the taxman. The coalition invited them and others to consult

:24:26.:24:36.
:24:36.:24:36.

Your question was, is the influence disproportionate, does somehow

:24:36.:24:41.

business somehow have a backdoor key to Downing Street? I'm not

:24:41.:24:44.

saying big business had a backdoor key. I think the front door has

:24:44.:24:47.

been wide open. I'm saying it's blatantly clear that big business

:24:47.:24:51.

has had disproportionate influence on government policy. I reject that.

:24:51.:24:53.

I don't think they've had disproportionate influence on

:24:53.:24:56.

government policy. Government makes its own decisions. They don't take

:24:56.:25:03.

a lecture from the CBI or from me. Obviously the interests of

:25:03.:25:05.

businesses are ones that the Government has to take into account,

:25:05.:25:08.

quite particularly when they are so concerned about the weakness of the

:25:08.:25:13.

economy. It matters less if you've got great prosperity, a booming

:25:13.:25:22.

The Treasury reckons relaxing the rules on taxing foreign profits

:25:22.:25:28.

will cost over �800 million in the next few years in lost revenue.

:25:28.:25:31.

Worth it, says the Government, because it will boost investment

:25:31.:25:37.

and encourage more companies to move their HQs here. And they're

:25:37.:25:40.

already coming. The world's largest insurance company, Aon, is moving

:25:40.:25:46.

its HQ here from Chicago. When it's finished, this building will become

:25:47.:25:50.

home to some of the 6,000 Aon staff who already work here, and the new

:25:50.:25:57.

arrivals from the States. So what exactly will the UK get out of it?

:25:57.:26:01.

Well, not a lot. Only seven top executives and a small group of

:26:01.:26:05.

support staff will actually be moving to London. All told, just 19

:26:05.:26:15.
:26:15.:26:18.

people. Aon says that... Although relatively small in number, those

:26:18.:26:20.

moving to London represent the executive decision making within

:26:20.:26:26.

the firm. There are lots more new jobs on the way. But they will be

:26:26.:26:30.

in Chicago, not London. My guess is that the benefits of

:26:30.:26:33.

this for the UK economy are pretty trivial. We'll get a little bit of

:26:34.:26:37.

revenue from the people who were brought over, but the impact on our

:26:37.:26:42.

economy is going to be very small. Moreover, this is a global

:26:42.:26:46.

competition. Other counties will be trying to do the same thing. We may

:26:46.:26:56.
:26:56.:26:57.

feel that we lose more than we gain in this. Aon told us... That while

:26:57.:26:58.

their decision provides them with increased financial flexibility,

:26:58.:27:04.

their resolution to move to London was primarily a strategic one". But

:27:04.:27:07.

in the small print of Aon's disclosures filed with US financial

:27:07.:27:09.

authorities, tax was a major motive for the move.

:27:10.:27:13.

Look, these are difficult times, but if we want to see growth, if

:27:13.:27:15.

we're really determined about seeing growth in this country, we

:27:15.:27:18.

have to have a competitive tax system.

:27:18.:27:21.

Business in the UK now pays a lower rate of corporation tax than most

:27:22.:27:27.

of the world's biggest economies. But what are the consequences of

:27:27.:27:35.

this competition to attract companies by taxing them less?

:27:35.:27:39.

At the core of this, I think, is a race to the bottom on the taxation

:27:39.:27:47.

of profits and capital income. What is fundamentally clear is, as the

:27:47.:27:49.

tax revenue can be generated from the corporate sector diminishes

:27:49.:27:51.

under this long-term downward pressure of tax competition,

:27:51.:27:54.

somebody else must pay more to support the functions of the state

:27:54.:28:04.
:28:04.:28:10.

or the functions of the state Whether or not the Government

:28:10.:28:17.

attracts more businesses by asking for less tax remains to be seen.

:28:17.:28:23.

And if they do come, what will ordinary taxpayers get out of it?

:28:23.:28:26.

What the secret tax deals in Luxembourg reveal is just how far

:28:26.:28:33.

companies will go to avoid paying their fair share.

:28:33.:28:36.

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