Bloomberg News

U.K. Government Urged to Probe Alliance Boots Over Tax Affairs

May 29, 2014

Anti-poverty advocates asked the U.K. government to investigate the offshore tax arrangements of Alliance Boots GmbH, alleging that the drugstore operator has underpaid by as much as 1.3 billion pounds ($2.2 billion).

U.K. charity War on Want and U.S. labor union federation Change to Win are asking Chancellor of the Exchequer George Osborne and Her Majesty’s Revenue & Customs to probe the closely held company’s use of so-called Limited Liability Partnerships, some members of which are based in the tax haven of the Cayman Islands, a British overseas territory in the Caribbean.

“We strongly urge HM Revenue & Customs to bring an investigation into Alliance Boots’ use of these LLPs,” the organizations wrote in a letter obtained by Bloomberg News that was sent today. They contend that the company avoided paying at least 1.12 billion pounds through interest deductions over six years, reducing its U.K. corporate tax bill by 95 percent.

Alliance Boots, in which Walgreen Co. (WAG:US) acquired a 45 percent stake last year, said in a statement that its tax affairs are organized “strictly in compliance with all applicable laws in each jurisdiction in which it operates.”

Since late 2012, the U.K. Parliament has held a series of hearings on global tax avoidance, including examinations of the strategies used by Google Inc., (GOOG:US) Amazon.com Inc. and Starbucks Corp. The letter from War on Want and Change to Win was also sent to Margaret Hodge, the opposition Labour Party lawmaker who heads Parliament’s Public Accounts Committee and last year crossed swords with senior executives from those companies.

Senate Hearings

In the U.S., the Senate has held hearings on the tax-avoidance techniques of several companies which have used subsidiaries in locations such as Luxembourg, Bermuda and Ireland to pare billions of dollars off of their tax bills.

The Organization for Economic Cooperation and Development, a grouping of developed economies, is close to completing a plan requested by the Group of 20 nations to combat so-called corporate profit-shifting, including the use of offshore units.

In their letter, London-based War on Want and Change to Win say that after being bought in a leveraged buyout in 2007, Alliance Boots transferred store properties to a group of LLPs and used a Cayman Islands partner to “provide flexibility and a veil of secrecy to the whole business.”

According to a separate briefing note made available to U.K. lawmakers by the organizations earlier this year, Alliance Boots gets the advantages of being located in the U.K., such as local law and rules on registered land holdings, while also receiving offshore tax advantages related to capital gains and interest income. Any profits on rental income would also be partly attributable to a Cayman entity, they said in the note.

‘No Benefit’

Alliance Boots said the Cayman incorporated company is subject to U.K. tax, while U.K. properties that are held in an LLP structure are fully taxable in Britain, “so there is no tax benefit arising from this structure.”

The drugstore operator said it paid 50 percent more cash taxes in the 12 months ended March 2014 than in its last year as a public company through 2007, even though about two-thirds of revenue now comes from outside the U.K.

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net Paul Jarvis, Eddie Buckle


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