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Mondelez UK, the British arm of Cadbury’s American owners Mondelez, have come under scrutiny, after it was revealed that they have paid no corporation tax in the UK for the past two years.

The revelation came as the company posted sales of over £1.7billion in 2015, £177million of which was marked down as profits.

Exploring the tactics employed by Mondelez, Luke Corcoran – commercial law specialist – explains how the company acted completely lawfully while avoiding tax.

Interest Payments & Accounting Gains

Mondelez, who took over Cadbury in an £11.5bn acquisition when it was part of Kraft food back in 2010, has structured various arms of its business to ensure that it legally avoids paying any corporation tax in the UK.

By the books, the company should have paid £36million in corporation tax on their £177million of profits earned in the UK last year.

The company, who also produces Ritz biscuits and Philadelphia cheese, were able to avoid tax by declaring a tax-exempt £42million non-cash accounting gain from the sale of its coffee business, while other profits were offset by interest payments.

As of December last year, holding companies for former Cadbury companies paid £1.4billion in interest over 3 years, which created tax losses that offset profits elsewhere in the Mondelez group.

Even these interest payments were tax-exempt, as Mondelez routed the payments out of the UK through Eurobond exemption rules.

Controversial Takeover

It is not the first time Mondelez has made controversial headlines in the UK, as the acquisition of famous British chocolate brand Cadbury was mired by negative coverage, namely as the company regressed on a promise to keep a plant in Bristol open, resulting in 400 job losses.

Mondelez UK use similar tax strategies to avoid tax bills for subsidy companies, with Cadbury itself also avoiding tax in the past, despite posting profits of £96.5million.

In response to criticism, a Mondelez spokeswoman is quoted as saying:

“We are a global company, operating and paying tax in more than 165 countries and on a global basis we pay hundreds of millions of dollars in corporate income tax annually.”

“In common with all global firms, we pay corporation tax based on the laws of the countries in which we operate.”

Luke explains why Mondelez’s response to the controversy may leave a bitter taste in the mouth of consumers:

“The release of Mondelez UK’s earnings and tax figures to the Companies House has caused yet another tax controversy to be reported by the British press.”

“With similar stories being published about most multinationals, especially those in the tech industry, it seems as though tax avoidance is becoming par for the course for international firms doing business in the UK.”

“Mondelez’s tax strategy is a little more complex than simply routing sales through the location with the lowest tax rate, which is the move employed by most businesses, as they instead offset profits by declaring tax payments by other subsidies in the group.”

“Ultimately, Mondelez are abiding by all UK laws, so there’s no direct action the government can take against them and any changes to the rules to close loopholes will not apply to retrospective tax returns.”

“While the loopholes remain open, companies will continue to exploit them and it is only through international co-operation between nations that businesses will be held accountable to pay the base tax rate in each country that they operate.”

Written by Luke Corcoran.

For more information on commercial law and the services offered by Simpson Millar, please call:

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