Marks and Spencer the latest firm to come into UK tax spotlight for using Irish arm in billing
Marks & Spencer has become the latest company to be embroiled in the UK controversy over tax practices following reports it uses an Irish subsidiary to bill European sales.
In a structure used only for overseas sales, the company’s UK warehouses sell goods to Marks & Spencer (Ireland) Ltd at wholesale prices, according to reports.
The retailer dispatches online orders destined for mainland Europe from the UK but bills the transaction to Ireland, according to documents seen by the Guardian.
In a structure used only for overseas sales, the company’s UK warehouses sell goods to Marks & Spencer (Ireland) Ltd at wholesale prices, allowing M&S to pay Ireland’s 12.5pc rate of corporation tax, the lowest in Western Europe, on any retail mark-up.
Such arrangements, known as “transfer pricing” are completely legal but have drawn heavy criticism in the UK in recent months. Tax avoidance is set to feature high on the agenda at next month’s G8 economic summit.
M&S said it uses Ireland as host of its European website because it also its largest international market. It stressed that sales made on the site are not for UK customers and that it pays full UK corporation tax on all domestic sales.
The retailer was forced to defend its tax practices ahead of reporting full-year results tomorrow. City analysts expect pre-tax profits to be flat at £658m, with a rise in food sales offset by a sharp decline in general merchandise.
Despite stalling profits and a disappointing performance in its clothing division, the retailer’s chairman maintains the company is undergoing a “radical transformation”.
Robert Swannell, M&S chief executive, said that he is “100pc behind” Marc Bolland, the chief executive, and his strategy, which involves a modernisation of the retailer’s infrastructure and a new management team.
Mr Swannell said the changes represent “one of the most radical transformations in British retail or indeed European retail, any European business of scale”.
He added: “The board have spent the last two-and-a-half years talking about this plan. We absolutely knew there were going to be times when there was going to be discomfort to get this business into the position that it absolutely needed to be. If that means you keep a straight path when there is some temptation to zig-zag, then so be it. That is what we are going to do.
“In the end, what we have got to do, as a board, is chart a course that is every bit as exacting as our shareholders could be, as though it were our own business and our own money. That is what we are determined to do. To build a business that we think will be a more valuable business in the long-term. A sustained and sustainable business. A business that does not require every period of time a great huge dollop of capital.”
Mr Swannell said Mr Bolland was doing a “fantastic job”.
Jean Roche, analyst at Panmure Gordon, said the results were “unlikely to encourage” upgrades to profits forecasts for the next year but that the City “should be careful not to underestimate the positive effect that a well-received womenswear collection could have on the company’s financial performance”.