Fresh tax revelations at News

Murdoch's movers: 'Independent' inquiry reveals minimal payments at three more subsidiaries

Fresh evidence of tax avoidance by Rupert Murdoch's News International has emerged in the wake of an Independent investigation into the newspaper publisher's subsidiary accounts.

Transactions in three of News International's "finance" companies in the year to June 1994 created profits of pounds 340m but attracted virtually no tax.

As the Independent reported last Monday, News International, owner of four national newspaper titles including the Times and the Sun, made consolidated profits of pounds 779m in the year to June 1995 but paid nothing to the Inland Revenue on its core newspaper operations.

Over the past 10 years, during which the company earned nearly pounds 1bn in profits (net of operating losses), the total tax bill was a net pounds 11.74m, or just 1.2 per cent.

News International's completely legal efforts to minimise corporation tax, which is normally set at 33 per cent, are fuelling the debate about taxation in the UK, and may form part of the Labour Party's study into ways of reforming the corporation tax system.

The Labour Party, however, has declined to comment directly on News International's tax affairs. Alistair Darling, Labour's spokesman on City matters, told the Independent on Sunday that "you must never design a tax system to get at one person. It is a matter of fundamental principle."

Labour's reluctance to comment has led critics to claim that it is cosying up to Mr Murdoch in advance of the next election. They point to Labour leader Tony Blair's speech at a conference sponsored by Mr Murdoch's master company, News Corporation, in August and his signed article in the final edition of News International's now-defunct newspaper, Today, inviting readers to switch to the Sun, as proof of a change in the Labour Party's attitude toward Mr Murdoch.

The newly revealed transactions are detailed in the published accounts of three NI subsidiaries: Ordinto Investments, Lyntress Limited and Admacroft Limited.

Ordinto Investments, whose accounts are maintained in US dollars, held shares in Pearson, the media and information company, over which the Bermuda- registered News Publishers Finance and other associated companies held options.

These were exercised in 1993/94, giving rise to a profit of $123m. Added to net investment income of $140m, a foreign exchange gain of $10m, and other small items, Ordinto had pre-tax profits of a princely $278m (pounds 174m) in 1994. On this, it paid "tax attributable" to franked investment income of $500,000.

Lyntress, another subsidiary, is said to be "an investment company," and has held shares in Reuters, the news agency. Newscorp Finance NV, a subsidiary based in the Netherlands Antilles, had options over the shares, which it exercised in the year ending June 1994.

The profit on this transaction totalled pounds 70,000, an amount duly entered in the profit-and-loss account for the year.

In addition to this gain, the company lists a foreign exchange profit of pounds 12.9m, but provides no details as to how this profit was generated. News International declined to elaborate.

Admacroft, likewise a "finance" company and a subsidiary of News International, reports profits in the year to 1994 of pounds 48.7m, but paid tax of only pounds 6,000. Moreover, all of this tax payment relates to withholding tax on interest receivable from "fellow subsidiary undertakings".

The key to tax planning at News International is the large-scale transfer of funds among group subsidiaries. This is usually in the form of intra- company lending and borrowing, and the use of so-called "group tax relief," by which profits in one part of the group are offset by tax losses elsewhere in the group.

An example of such intra-company dealing can be found in the accounts of Canterpath Investments, a dormant company in 1993 and 1994, which had an investment income of pounds 106m, and interest costs of pounds 105m, in 1992, despite being a pounds 2 company.

Asked to comment on its tax strategy, News International re-issued the following statement:

"It is our policy not to comment on financial or tax matters outside the normal course of publishing the company's accounts.

"For the record, the company has complied fully with its obligations under all tax laws to which it is subject, including those of the UK.

"In the past, the company's tax returns have been audited by the Inland Revenue on a regular basis".