By Lyndsey Hall
Birmingham based confectioner Cadbury has become the latest in a line of big companies to be caught out by HMRC for aggressive tax avoidance, as reported by the Financial Times.
The well-known British chocolate company was taken over by the American giant Kraft, which was more recently bought out by Mondelez International, back in 2010, in a £12 billion deal that was a topic of heated debate in the House of Commons. MPs were concerned that the deal would heavily reduce tax paid into the Treasury, however, the Financial Times reported that between 2006 and 2008 Cadbury employed tax avoidance schemes, including one with the codename “Chaffinch”, to reduce their tax bill by £17 million, resulting in the company paying less than £6.5 million in tax per year over the decade preceding the sale, on annual profits averaging £100 million.
Chaffinch was allegedly a dormant subsidiary of the company that lent Cadbury’s UK financing company £728 million in 2006. The borrowing entity recorded the debt at £671 million and reported the difference of £57 million as interest paid over an eighteen month period, up to mid-2008. This amount was then deducted from Cadbury’s profits for that period.
Another tax avoidance method used by Cadbury included sheltering around £400 million in the Cayman Islands, a well-known tax haven, in order to avoid paying £9 million in tax.
The famous confectioner also engineered interest charges that could be deducted from its gross profits, and used funds to finance growth in countries with lower tax rates, such as Ireland. The aggressive type of tax avoidance schemes used by Cadbury are currently under attack by the Government, but not all tax strategies are illegal, or considered aggressive.
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