Cadbury's tax avoidance
13th Dec 2010
A recent Guardian article reports that Cadbury is to be restructured by its new American parent company, Kraft, to avoid paying millions of pounds in UK tax.
The restructuring plan apparently involves creating a parent holding company in Zurich, which would allow much of Cadbury's profit to be booked in Switzerland, thus benefiting from a much lower rate of corporation tax. In Zurich, rates begin at 15%, whereas corporation tax in the UK is currently 28%. Last year, Cadbury paid £197m in UK tax.
This is a form of “tax avoidance”, which can be defined as the minimisation of tax liability by lawful methods, as distinct from “tax evasion” which refers to illegal efforts not to pay tax.
The fact that tax avoidance is legal doesn’t stop national governments from trying to crack down on it, though often with limited success.
In 2004, HM Revenue & Customs tried to stop Cadbury Schweppes from using subsidiary companies in Dublin to benefit from the 10% corporate tax rate there. In a landmark case Cadbury Schweppes appealed to the European Court of Justice and won. Now, Cadbury’s move to Switzerland underlines the dwindling strength of national governments as they attempt to tax footloose multinationals.
A far cry then from the early days of the company.
In the late nineteenth century George Cadbury was determined to use his wealth to promote social reform and justice, implementing and campaigning for improved labour conditions, shorter working hours, old age pensions and sickness benefits in a way that anticipated the founding of the welfare state.
He would have understood instinctively the tax justice argument: that tax represents a social contract between citizen and state. Tax revenues not only support collective goods such as the NHS or the education system, the very act of taxation fosters better and more accountable government.