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.”


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

Margaret Hodge, head of the powerful Public Accounts Committee, said Gatwick should pay its “fair share” of corporation tax

Gatwick bosses were today accused of “hypocrisy” for avoiding corporation tax while campaigning to build a new runway for the benefit of the UK economy.

Margaret Hodge, head of the powerful Public Accounts Committee, said the airport should pay its “fair share” if it wants its campaign to be credible.

She also criticised Heathrow airport which has not paid corporation tax,  levied at 21 per cent on company profits, for several years.

But it is the tax affairs of the Sussex airport that have caused the most controversy following an investigation by the Standard. Gatwick’s Guernsey-based parent company Ivy Mid Co LP has invested in a £437 million “Eurobond” which charges the airport 12 per cent interest  and which critics say is designed to avoid tax.

Gatwick said tax authorities were “wholly aware” of their funding structure, and the Eurobond was commonly used by other infrastructure companies. The scheme had not helped the airport avoid tax as it was not in a profitable situation due to the cost of a £1 billion upgrade to the airport under its new owners, Gatwick said.

Accounts for the past four years for Gatwick Airport Limited (GAL) show pre-tax losses of £322 million and a tax credit of £192 million, but despite these losses it has paid dividends to its overseas shareholders of £436 million.

The Standard has also learnt that Heathrow has not paid corporation tax for several years, offsetting the cost of a new terminal to build a tax credit of £234 million despite pre-tax profits of £429 million.

But the airport, which says it is key to the UK’s economic growth, said it “looked forward to” paying corporation tax later this year and did not “route funds through tax havens”.

Ms Hodge, a potential London mayoral candidate, said that ministers should put airports under pressure to pay corporation tax as the bidding process for airport expansion reaches its conclusion next spring.

She 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.”

A Gatwick spokesman said: “Gatwick Airport is fully compliant with UK tax law and HMRC are wholly aware of our funding structure.”

A Heathrow spokesman said it complies with all tax rules, does not operate tax avoidance measures, and is “entirely UK based for tax purposes”.


See earlier:

Gatwick airport announces first profits for years and returns for its investors … UK tax?

Gatwick airport has announced its results for the year to 31st March 2014. It has made a profit, for the first time in 4 years. Gatwick says its passenger numbers reached 35.9 million in 2013/14 (4.8% up on 2012/13). Their turnover is up 10.2% to £593.7 million and EBITDA is up 14.2% to £259.4 million, with a resulting profit of £57.5 million. This compared to a loss in the financial year ending 31 March 2013 of £29.1 million. The airport has spent a great deal improving the airport, and so made losses – and paid no tax to the UK government for years. Gatwick says their investments and more marketing is being effective in attracting more passengers. It now has more aircraft movements at peak times (a cause of the noise nuisance being caused from new flight paths). Gatwick now claims 20% are travelling on business, largely on EasyJet. The figure was 17.5% in 2012. Gatwick says it will now be paying dividends to its investors, though it has not in recent  years. It expects to pay £125m to investors in the current financial year,  £65m return in the 2015/16 financial year and £60m in 2016/17. [Maybe also pay some UK tax?  



Gatwick Airport paid no Corporation Tax in three years

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.      

IAG is to pay its first ever dividend and British Airways is due to return to profit

The parent group that owns British Airways, IAG, have said that they are now making profits and will give their first dividend, probably in November.  This is their first dividend since they were created in 2011 through the merger of British Airways and Spain’s Iberia. IAG has also bought bmi and Spanish budget carrier Vueling since its formation. Analysts believe shareholders will receive their first payment at the end of IAG’s 2015 financial year at the latest, as the controversial turnaround at Iberia, which required the loss of some 4,500 jobs and sparked strikes and political outcry in Spain, has stemmed the losses. IAG posted a €96m pre-tax profit for the six months to June 30 this year, up from a €503m loss at the same time in 2013.  IAG says it is on track to improve operating profit this year by “at least” €500m, from €770m in 2013. British Airways’ CEO, Willie Walsh said in August that BA had now returned to profit for the first time since 2007, the start of the financial crisis. BA has barely paid any UK corporation tax for years – it may pay round £61 million for the 2013 financial year.


See also

Irish clampdown on tax avoidance will be followed by the UK


By Kamal Ahmed (BBC)

oday the Irish government announced something very significant. The closure of the notorious “Double Irish” tax loophole.

The reason it’s important is not because it is changing Ireland’s tax regime, which it is.

It is important because the double Irish is the method by which global companies reduce taxes on the businesses they run around the world.

And the Treasury is following developments closely and is poised to launch its own crackdown on “diverted profits”, which is what the double Irish allows companies to do.

Google and Facebook have both been fingered for using the scheme – as have a number of pharmaceutical firms.

It enables businesses – via a complex system of royalty payments – to move revenues to locations which are described as “tax efficient” – such as low-tax Ireland and no-tax the Bahamas.

Campaigners argue that tax efficient should be more suitably described as tax avoiding.

The companies say that they are simply following the rules.

It wasn’t Eric Schmidt, the chairman of Google, who decided that Ireland would allow a system to develop where corporations were effectively “stateless” for tax purposes, and could therefore move payments to tax havens like the Bahamas whilst still creating huge revenues in Europe via a company based in Dublin.

‘Lowest taxes’

The use of the double Irish has had the effect of reducing the available taxes paid to countries where Google and Facebook operate, including the UK.

George Osborne raised the issue in his Conservative Party conference speech last month.

“While we offer some of the lowest business taxes in the world, we expect those taxes to be paid – not avoided,” he said.

“Some technology companies go to extraordinary lengths to pay little or no tax here. If you abuse our tax system, you abuse the trust of the British people.

“And my message to those companies is clear – we will put a stop to it.”

I am told that Treasury officials are now busy constructing new rules that will stop the diverting of profits made in the UK via intellectual property payments to company subsidiaries.

One source told me that profits made in Britain would be taxed in Britain.

This could make a significant difference to companies like Google and Facebook, which generate large amounts of revenue in the UK but do not pay significant amounts of tax.

The chancellor wants to make the move part of his “fairer markets” agenda.

He will need to convince campaigners that this is not just window dressing.

‘Tax competition’

And his message on not avoiding taxes can become confused given that Mr Osborne also trumpets policies like the patent box. This makes it tax efficient to complete research and development in technology and pharmaceuticals in Britain.

Interestingly, whilst abolishing the “double Irish”, the finance minister, Michael Noonan, did announce the creation of Ireland’s equivalent of the patent box – the knowledge development box.

Tax competition will always exist. Governments want to encourage investment in certain sectors in their own countries and jealously guard their right to do so.

The most egregious might be limited. But don’t imagine that companies searching the globe for the best, most tax efficient, place to do business is going to end any time soon.