Fit for Captain’s table? Food and drink firms use legal tax loophole

Lost revenue from owners of beer, biscuit and frozen food brands, such as Birds Eye

The companies behind some of Britain’s best-selling beer, biscuits and frozen food brands are avoiding millions in tax by exploiting a legal loophole.

The fourth part of a joint investigation by Corporate Watch and The Independent reveals that three food and drink giants are reducing their UK tax bill by taking high-interest loans from their owners via the Channel Islands Stock Exchange. They are then sending the interest out of the UK tax free, thanks to a foreign investment incentive known as the quoted Eurobond exemption.

The companies are: United Biscuits, which owns major brands including McVitie’s, Penguin, Jaffa Cakes and Twiglets; Molson Coors, whose beers include Carling, Coors, Cobra and Miller; and Iglo Foods, which owns Birds Eye.

Sarah Kwei, a spokeswoman for the campaign group UK Uncut, said: “The British public will be justifiably outraged when they hear about this further evidence of tax avoidance by high street stores and manufacturers. They want to know that the places they shop and the products they buy aren’t run and made by greedy tax dodgers.”

US brewing giant Molson Coors has avoided up to £67m in UK corporation tax by lending its British businesses £535m instead of investing the money as equity. Profits made through sales of Carling – the UK’s biggest-selling lager – and other brands are cut by the interest payments on the loan.

A percentage of the interest payments would usually go straight to HMRC, significantly reducing the overall tax saving from the scheme. But because the loans were made through the Channel Islands Stock Exchange they qualify for the quoted Eurobond exemption and can leave the UK tax free.

The exemption was introduced in 1984 to encourage third-party investment into the UK but is increasingly being used for lending between related parties. HMRC considered restricting its use last year but backed down after heavy pressure from the financial industry.

United Biscuits sent £36.7m in 2012 to its Luxembourg-registered parent company, which is owned by the Blackstone and PAI private equity funds. United, which also makes Carr’s and Hobnobs, borrowed about £360m at an 8.1 per cent interest rate in 2008. Given its owners have allowed £130m in interest to accrue on the loan since then, more than £36m may have been avoided in total.

Frozen food giant Iglo accrued about £150m in interest on loans from their owners in 2012, which could have saved tens of millions in UK tax. HMRC told them some of the interest could not be deducted from their tax bill, but the company would not disclose the amounts involved.

The Birds Eye owner owes £800m at rates of between 15 and 17 per cent to a Luxembourg-registered subsidiary of Permira private equity, its ultimate parent. Permira specialises in buying businesses and selling them on at a profit for investors, which include leading corporate and public pension funds, insurance companies and sovereign wealth funds. Permira lent the money through the Channel Islands shortly after it bought Iglo from Unilever in 2006.

This week, The Independent is revealing more than 30 companies loading up on debt from their owners and using the exemption to send the interest overseas tax free. Analysis of listings on the Channel Islands Stock Exchange and UK company accounts suggests the scheme is costing the UK public purse at least £500m a year.

A Molson Coors spokesman said: “Molson Coors comply fully to the tax codes of every market in which it operates.” He also said that the beer giant had shared their accounts with HMRC following this investigation and that the tax office “reviewed and approved” their tax affairs.

A spokeswoman for United Biscuits Group said that neither they, nor its parent companies, would comment. A spokesman for Iglo holdings said: “The Quoted Eurobond exemption scheme is entirely legal and serves many purposes but it does not reduce Iglo’s corporation tax bill at all.”

A HMRC spokesman said: “We cannot comment on individual cases, however it’s important to be clear that HMRC challenges and closes loopholes and does not condone their use.”

Buried treasure: Counting the cost of missing millions

United Biscuits group

Products: Penguin, McVitie’s, Digestives, Jaffa Cakes, Jamaica Ginger Cake, Club, Carr’s, Wheat Crunchies, Hobnobs, Mini Cheddars, Jacob’s Crackers

Estimated tax avoided 2012: £9m

Estimated total tax avoided since using loophole: £36m

Molson Coors

Products: Carling, Coors, Cobra, Miller, Doom Bar and Staropramen beers

Estimated tax avoided 2012: £10m

Estimated total tax avoided since using loophole: £67m

Iglo Foods Holdings Ltd

Products: Birds Eye

Estimated tax avoided 2012: £m?*

Estimated total tax avoided since using loophole: £m?*

* It is unclear how much tax has been avoided because Iglo say some of the interest is not taken off their tax bill, but will not disclose the figures involved. The potential savings could still be in the tens of millions.