The world’s largest pharma firm Pfizer managed to escape paying the UK Government any tax last year, according to new financial documents.
The firm had a turnover of £1.8 billion on its UK sales last year, but said that its UK subsidiary made an operating loss of £59 million in 2011 and £46 million in 2010, meaning it had no profits in the country to pay tax on.
But critics argue that major corporations such as Pfizer, Google, Amazon and Starbucks – which have all paid little or no tax after also posting losses – are simply shifting around money made in the UK to off-shore tax havens so they do not have to declare the money, and therefore not pay tax.
This has all come to a head as a governmental financial committee has summoned the chiefs of these firms to answer tough questions on its tax arrangements, and whether it is exploiting loop holes in UK law to minimise tax payment.
According to figures from The Independent newspaper, if Pfizer’s profit margin in the UK had been similar to its global average, it would have made a pre-tax profit of £347 million on its UK earnings – on which it might have been expected to pay tax of 25 per cent. Pfizer has previously faced scrutiny over its tax affairs in the USA and Germany.
In a statement, the firm said: “Due to a number of factors including the level of investment Pfizer makes into the UK and restructuring costs [for its Sandwich site], Pfizer actually generated losses in the UK in 2011. Under UK tax law, corporation tax is calculated on profits not turnover. Pfizer conducts business in more than 150 countries around the world. At all times and wherever we operate, Pfizer complies with the appropriate rules and regulations.”
Charlie Elphicke, a former tax lawyer and now a Conservative MP who has launched a campaign to end tax avoidance by multinational companies, said the UK’s tax office needed to be feared far more by companies.
He told The Independent: “What concerns me is that you have a company like Pfizer that has such a large presence in the UK not paying any tax at all. That raises serious questions,” he said. “We need to have an aggressive approach to tax like they have in [the USA] where those that evade taxes are prosecuted and those that avoid it face heavy scrutiny.”
Pharma tax deals
Allegations of tax avoidance among pharma firms is nothing new. In May, a BBC Panorama programme alleged that GlaxoSmithKline, amongst other UK firms, had cut a secret tax deal with authorities in Luxembourg to avoid millions in corporation tax in Britain.
GSK set up a new company in the well-known tax haven of Luxembourg three years ago and in 2010, the new subsidiary lent £6.3 billion to a GSK company in the UK. In return, the UK company paid nearly £124 million in interest back to the Luxembourg subsidiary – effectively removing that money from the UK company’s profits, according to the BBC.
That move meant the money was no longer available to tax in the UK at 28% – in Luxembourg, tax authorities had agreed a generous deal to levy tax on that £124 million at effectively less than 0.5%, or just over £300,000.
As a result, GSK in the UK potentially avoided up to £34 million in UK corporation tax, the BBC said.
The drug giant denied the accusations, calling them “extremely misleading and lacking in context”. The company said in a statement it paid about £1 billion in UK corporation and business taxes, as well as an additional £1.3 billion in income tax from its UK employees during the period covered in the programme.
