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Major tobacco companies pay almost no UK corporation tax despite massive profits, study finds

February 08, 2019

Big tobacco companies are paying a “pitiful” amount of corporation tax on billions of pounds of profits, leaving taxpayers to pick up the tab for the enormous cost smoking has on the NHS and the economy, according to new research.

Imperial Brands, British American Tobacco (BAT), Philip Morris and Japan Tobacco International have all shifted their corporate structures to minimise their UK tax bills, researchers from the University of Bath found.

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The authors demanded a tobacco industry levy to ensure firms pay the costs associated with their deadly product.

Despite being headquartered in Britain, Imperial paid an effective rate of just 13 per cent over the past seven years, during which corporation tax has varied between 20 per cent and 28 per cent.

BAT is also based in the UK but paid “virtually no” corporation tax over the same period, including four consecutive years (2011-14) where it paid nothing at all, the paper found.

By moving profits overseas, the companies are leaving UK taxpayers to pay hundreds of millions to deal with smoking-related problems.

Smoking cost the economy £11bn in England alone in 2017, according to a government estimate. Meanwhile, only £9.5bn was generated in tobacco excise duty across the whole of the UK, leaving a £1.5bn gap which is not met by corporation taxes.

“The tobacco industry is dodging its obligation to contribute to the UK tax system, leaving the public to pay for clearing up the mess caused by its products,” said George Butterworth, Cancer Research UK’s policy manager.

“The government should impose a tobacco industry levy and consider a surcharge on corporation tax or other mechanisms to help fund services to help smokers quit.”

In 2016, Imperial made £3.5bn adjusted operating profits globally, paying £467m in overseas profit taxation. But in the UK, the company which makes Davidoff and Lambert & Butler cigarettes paid just £33m corporation tax on an estimated £937m of earnings.

In the same year BAT made £6.2bn in global profits, paying £1.4bn in overseas taxation but the UK exchequer received only £7m in corporation tax. The maker of Dunhill, Camel and Lucky Strike does not report detailed enough financial information to accurately calculate its UK earnings.

The findings published in the Journal of Public Health on Wednesday will pile further pressure on the government to ensure multinational firms pay their fair share.

To make up the shortfall, the paper calls for an 8 per cent tax surcharge on tobacco firms’ profits.

A similar charge is currently applied to big banks. It is supposed to pay for the additional risk they pose to the wider financial system.

Firms should also be forced to file country by country reporting on tobacco sales and profit so they can’t artificially move sales into low-tax jurisdictions.

Previous work from the same authors shows that tobacco companies enjoy “inordinate profits” on their highly addictive product.

Profits have increased over recent years, despite declining sales, because regular price increases on cigarettes have outpaced people’s ability to give up smoking, say the researchers.

Lead author Dr Rob Branston from the University of Bath School of Management said: “Despite the enormous profits these companies enjoy, levels of corporation tax paid are pitiful.

“The government must better hold these companies to account, and an essential first step is the publication of accurate country by country information on sales and profits.”

Coauthor Professor Anna Gilmore, director of the research group, said: “With the NHS under intense funding pressure, these findings need to be acted upon by the Treasury.

“It is unacceptable that tobacco companies, which are enormously profitable, are not paying for the harm they cause. Until they begin to do so, they remain incentivised to keep selling their uniquely deadly product.”

A government spokesperson said “significant steps” had been taken to ensure companies pay the right amount of tax.

“Large companies must pay the tax that is due and we do not settle for less. In 2017/18, HMRC secured over £9bn in additional tax revenue from the largest and most complex businesses.”

Simon Cleverly, head of corporate affairs at BAT, said the company’s statutory accounts include profits for the group worldwide, and pointed out that the company pays employment taxes and VAT.

Source: INDEPENDENT