How can Viagra maker Pfizer pay no UK tax?

Top executives from leading global firms face questions over their tax affairs by MPs on Monday

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One of the largest suppliers of drugs to the NHS escaped paying any tax to the UK Government last year, it has emerged.

Pfizer, the company behind the best-selling drug on the UK market, Lipitor, and impotence drug Viagra, had a turnover of £1.8bn on its sales in the UK last year. But despite its huge business in this country, the accounts of the company's British-based subsidiary suggest it made an operating loss of £59m in 2011 and £46m in 2010.

Critics say Pfizer's operating loss is this country is typical of the way in which large multi-national companies are systematically able to legally avoid paying tax by piling costs into high tax jurisdictions, while reporting profits in low tax havens.

Globally, Pfizer made $12.7bn. If its profits margin in the UK had been similar to average, it would have made a pre-tax profit of £347m on its UK earnings – on which it might have been expected to pay tax of 25 per cent.

On Monday senior executives from Google, Starbucks and Amazon are due to face hours of hostile examination by MPs over their corporate tax affairs.

The companies have been summoned in front of the Public Accounts Committee (PAC) which is investigating how large multi-nationals have been able to take advantage of ambiguities in international tax regimes to reduce their tax bill in the UK to almost nothing.

But The Independent understands that the companies which have faced public scrutiny so far are just the "tip of the iceberg", with other well-known international brands likely to come under the spotlight over their tax affairs.

In the UK, Pfizer has its business headquarters in Tadworth, Surrey, and Maidenhead, Berkshire, and is a major supplier of medicines to the NHS. It also has a manufacturing and distribution site at Havant, Hampshire, and research and development facilities in Cambridge and Sandwich, Kent.

It has previously faced scrutiny over its tax affairs in the US and Germany. In a letter sent to the company earlier this year, US regulators asked it to explain how it recorded high profits overseas and losses at home when 40 per cent of its sales were inside the US.

Charlie Elphicke, a former tax lawyer and now a Conservative MP who has launched a campaign to end tax avoidance by multinational companies, said HMRC needed to be feared far more by companies.

"What concerns me is that you have a company like Pfizer which 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 America where those that evade taxes are prosecuted and those that avoid it face heavy scrutiny."

PAC chairwoman Margaret Hodge said she wanted clear answers from the companies next week, explaining how they could justify paying little or no tax on their UK operations. "We need far greater transparency," she said. "If companies are making money in the UK they should be paying tax in the UK. It is just common sense."

In a statement Pfizer said: "Due to a number of factors including the level of investment Pfizer makes into the UK and restructuring costs, 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."

Global giants: Tax facts

Google:

Estimated UK earnings: £2,572m

Estimated pre-tax profit £836.7m

Tax paid in the UK: £3.4m

Starbucks:

Estimated UK earnings: £397.7m

Estimated pre-tax profit: £59.6m

Tax paid in the UK: None

Amazon:

Estimated UK earnings: £3,963m

Estimated pre-tax profit: £76.9m

Tax paid in the UK: £1.9m

Facebook:

Estimated UK earnings: £180m

Estimated pre-tax profit: £21m

Tax paid in the UK: £280,000

Ebay:

Estimated UK earnings: £802m

Estimated pre-tax profit: £184m

Tax paid in the UK: £999,000