Diageo threatened with bigger French tax bill

Source: The Sunday Times
Simon Duke
August 13 2017

Diageo is embroiled in a row with the French taxman over a large slug of back taxes from the drinks giant.

France’s tax authorities have accused the Johnnie Walker and Guinness owner of not paying enough corporation tax on its earnings in the country.

At issue is the amount of debt interest the FTSE 100 giant has booked through its French subsidiary – payments that reduced its tax liabilities. France “intends to deny tax relief for certain interest costs”, Diageo disclosed in its annual report last week.

The revelation comes just months after the company, led by chief executive Ivan Menezes, was presented with a £107m bill by HM Revenue & Customs under the new “Google tax” rules aimed at preventing avoidance by multinationals.

The HMRC dispute centred on profits that Diageo shifted between the UK and an offshoot in the Netherlands.

In 2015, George Osborne’s diverted profits tax regime came into force, which imposed a 25% charge on taxable profits judged to have been artificially funnelled out of Britain. It was swiftly dubbed the “Google tax”.

In its report to shareholders, Diageo said it would hand over the cash to HMRC this month, but intended to “challenge the assessment”. The company said it did “not believe that it falls within the scope of the diverted profits tax regime”.

Diageo also vowed to fight if France hits it with a back tax bill, insisting its treatment of debt interest was legitimate. “At this stage of discussions Diageo is unable to meaningfully estimate the financial effect, if any, which might ultimately arise. Based on its current assessment, Diageo believes that no provision is required in respect of this issue,” it said.

Diageo last month launched a £1.5bn share buyback programme, as a reward to shareholders for a four-year turnaround programme led by Menezes. Operating profits jumped 25% to £3.6bn in the year to the end of June. Shares closed on Friday at £24.73, having risen about 13% over the past year.

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