Research paper done for GACC shows the techniques Gatwick uses to pay no UK corporation tax

It has been well known for several years that Gatwick airport uses a range of (legal) techniques and schemes to minimise its tax payments in the UK. Now a research paper – one of a series that local campaign GACC (the Gatwick Area Conservation Campaign) is producing – sets out much of the detail of how Gatwick does it.  The paper shows how Gatwick earns revenues of over £630 million per year, and yet pays no corporation tax.  While public attention – and anger – have concentrated on Google and Starbucks, Gatwick is playing the same game.  It pays no tax by complicated arrangements that include a combination of tax allowances for capital investment and deductibility of interest on debt, aided by a tangled web of inter-related company ownership in tax havens such as Luxembourg, Guernsey and the Cayman Islands. This complexity is not available to small companies. GACC says its new study is not easy reading for the layman but will be of considerable interest to investors who may be asked to fund a new runway, and to the DfT, which is at present trying to work on the new SE runway issue. Currently EU Finance Ministers will meet in Amsterdam on Friday 22 April to toughen company tax rules. That could cast doubt on the financial viability of a 2nd runway if some of the tax deals are tightened by by the EU and the G20.
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Tax talks threat to Gatwick runway

18.4.2016

(GACC – Gatwick Area Conservation Campaign)

The EU Finance Ministers’ meeting in Amsterdam on Friday 22 April to toughen company tax rules could put a spoke in Gatwick’s second runway plans. 

A new research study published today by GACC shows how Gatwick Airport Ltd earns revenues of over £630 million a year, and yet pays no corporation tax.  Public attention has concentrated on Google and Starbucks, but the new study shows that Gatwick is in the same game.[1]

Written by Ian Harris, a retired City corporate bond analyst, the study reveals that Gatwick achieves nil tax by a combination of tax allowances for capital investment and deductibility of interest on debt, aided by a tangled web of inter-related company ownership in tax havens such as Luxembourg, Guernsey and the Cayman Islands.  ‘I would emphasise,’ says Ian, ‘that all of this is entirely legitimate and within UK tax laws.  But it is an arrangement that would not come within the scope of the average small UK business.’

The new study is not easy reading for the layman but will be of considerable interest to investors who may be asked to fund a new runway, and to the Department for Transport which is at present trying to work out whether to recommend a new runway at Heathrow or at Gatwick.  ‘It would be unfortunate,’ says Ian, ‘if this mechanism was to continue to deprive the UK exchequer of a significant amount of tax revenue at a time when Gatwick hopes the government will grant it permission to build a second runway.’

Ian adds:  ‘It is beyond dispute that Gatwick, earning revenues in excess of £630 million each year, and growing, pays zero corporation tax despite being extremely profitable.  Yet whilst the business has recycled considerable amounts of cash into modernising airport facilities in recent years, the shareholders have still enjoyed good cash returns through both dividends and repayments of tax-efficient “debt” capital.’

Doubt is cast on the financial viability of a second runway if the Luxemburg structure and benefits cease to be feasible, owing to ongoing EU and G20 pressure on so-called tax deals.

A copy of “Gatwick Airport and Tax”  by Ian Harris is at www.gacc.org.uk/research-studies

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For further information, please contact

Brendon Sewill, GACC chairman, 01293 863369


[1] Google etc are non-UK businesses which transfer their UK profits to lower-rate countries by paying above the odds for imported goods, patents, licences or management fees; the sort of structure GIP/GAL uses is a buy-out structure put in place for non-UK owners of a UK business.   The similarity is that they both artificially reduce UK profits using a multi-national structure.


At the meeting on 22nd April, “The European Commission will be invited to give a policy reaction, i.e. an overview of the initiatives on the fight against money laundering, tax evasion and tax avoidance. Ministers and Central Bank Governors will be invited to exchange views.”

Link

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Earlier:

 

Margaret Hodge: Gatwick runway appeal ‘is hypocritical when it avoids corporation tax’

Gatwick has been accused of “hypocrisy” for avoiding corporation tax while campaigning to build a new runway, allegedly for the benefit of the UK economy. Margaret Hodge, head of Parliament’s Public Accounts Committee, said the airport should pay its “fair share” if it wants its runway campaign to be credible. She also criticised Heathrow which has not paid corporation tax for several years. But she particularly criticised Gatwick. Its Guernsey-based parent company Ivy Mid Co LP has invested in a £437 million “Eurobond” which charges the airport 12% interest, thus avoiding tax. Gatwick says this sort of bond is often used by other infrastructure companies. Companies in the UK should pay 21% corporation tax on profits, but by spending  £1 billion on upgrading the airport, Gatwick has made no profit recently. Despite pre-tax loses in recent years, it has paid dividends to its overseas shareholders of £436 million. Heathrow has also avoided profits by investing in new buildings etc.  Mrs Hodge said the companies “made a fortune” from their UK activities, which relied on public services,  adding: “For them to pretend they are only in it for the benefit of the UK economy is a touch hypocritical.”

http://www.airportwatch.org.uk/2014/10/margaret-hodge-gatwick-runway-appeal-is-hypocritical-when-it-avoids-corporation-tax/

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Gatwick Airport paid no Corporation Tax in three years

25.6.2013
Gatwick Airport has a £1.2 billion capital investment programme to improve its infrastructure and facilities. But it paid no corporation tax for three consecutive years despite making £638m in profit before tax. Gatwick tried to defend this position, saying: “Whilst year on year we have lessened our financial losses we have yet to make a profit after tax. As a result the airport has not paid corporation tax …Our current £1.2bn capital investment programme and existing asset base, together with the associated debt structure, result in depreciation and interest costs which reduce our operating profits to a loss before tax.”  In the 2012/13 year, Gatwick Airport made £227.1m profit before tax, a 2.5% increase, as it benefited from flights to new destinations in China, Russia, Indonesia, and Turkey. Despite this, it reported a net financial loss of £29.1m, citing asset depreciation and £226.7m of capital investment in the year. Corporation tax is only levied on a company’s net profit. In the UK the corporation tax rate is 23%. Under UK tax law, corporations can claim tax allowances on certain purchases or investments made on business assets. Campaign group UK Uncut estimates that clever accounting rules and complex tax avoidance schemes cost Britain £12bn annually.    
 
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