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Accenture’s tax affairs under scrutiny

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HMRC officials face questions about the tax affairs of one of the department’s key suppliers after the Sunday Times reported that Accenture UK had reduced its corporation tax bill to ‘3.5% of its profits’, and it emerged that the company’s immediate parent company is incorporated in Luxembourg.

Lin Homer, HMRC’s chief executive, is set to appear before the Commons public accounts committee on 6 December.

Update 29 November: ‘We make sure that multinationals pay the tax due to the UK in accordance with UK tax law,' says HMRC

The 3.5% ‘rate’ was based on the profits as shown in the accounts, and various adjustments to those profits – required by tax law – are accounted for in a note to the accounts. However, ‘cost of sales’ and other expenses that are not itemised in the notes amount to 96% of turnover.The Sunday Times reported on 25 November that Accenture, the global management consulting and technology company, faced scrutiny over ‘whether it reduces its operating profits – and its final British tax bill – by shifting some of its £2bn annual revenue to Ireland’.

Margaret Hodge, chairman of the public accounts committee, told the paper that she would question HMRC officials about why Accenture paid ‘such a low rate’ of corporation tax. She said: ‘It is absolutely absurd if HMRC are doing business with companies that are not paying their fair share of tax.’

The company declined to answer detailed questions posed by the paper and by Tax Journal. A spokesman for Accenture (UK) Ltd told Tax Journal today: ‘Accenture pays tax in accordance with the tax legislation of each country in which it operates.’

The Sunday Times reported that Accenture was being ‘audited by tax authorities in America’ over cross-border deals between various subsidiaries. However, such audits are not unusual.

The report said Accenture UK had ‘avoided tens of millions of pounds in corporation tax’, paying ‘only £2.8m of tax on nearly £82m of profits in Britain last year’. Accenture claimed a number of reliefs, including ‘partly paying some of its staff in share options and “adjustments” from previous years’. Share compensation relief cut £22m off the UK tax bill, it said.

The company ‘declined to comment’ on whether it was paying royalties to its Ireland parent company for the use of the Accenture name, and declined to answer questions on ‘any payment made from the British company to low-tax countries’.

Cost of sales

The accounts for the year to 31 August 2011 show a profit on ordinary activities before taxation of almost £82m.

However, the ‘operating profit’ of just over £84m comprises turnover of £2.06bn less cost of sales £1.67bn and administration, sales, marketing and other operating expenses of £306m. These outlays, amounting to almost £1.98bn, are not itemised in the notes to the accounts.

The notes confirm that Accenture UK’s ultimate parent company is Accenture plc, a company incorporated in Ireland. However, the immediate parent company is Accenture International SARL, incorporated in Luxembourg. An intermediate parent company, Accenture SCA, is also incorporated in Luxembourg.

The rate of UK corporation tax was 28% for the year to 31 March 2011 and 26% for the year to 31 March 2012. The taxable profits are the profits shown in the accounts, adjusted as required by corporation tax law. For example, depreciation of fixed assets is disallowed in the tax computation but capital allowances, as set out in the legislation, are deducted instead.