Glanbia has defended itself against claims it used Luxembourg-based subsidiaries to lower its Irish tax bill, saying it had an effective corporate tax rate of 17% last year on its global earnings, with the majority of payments made to the Irish exchequer.
“The group is tax compliant in all of the jurisdictions in which it operates,” the Kilkenny-based dairy and nutrition-focused food group said in a statement.
It was reported yesterday that Glanbia, along with other Irish and international firms, negotiated tax avoidance agreements with the Luxembourg authorities, whereby they established so-called brass plate subsidiaries, invested in them, loaned that money back to the parent firm, and used the interest paid on the loan to reduce its home tax bill.
Glanbia confirmed in a statement that it does have group subsidiaries based in Luxembourg, which form part of its inter-group financing agreements.
“These are clearly identifiable as Glanbia companies. The group is cognisant of its obligations under Irish and international tax law and is fully committed to compliance and reporting requirements in all jurisdictions in which the group operates,” it stated.
One source close to Glanbia’s financial workings suggested the €1bn reportedly invested in Luxembourg offshoots — via inter-company lending arrangements — was done so over the course of 16 years and started in 1997 in order to support the group’s international expansion and growth plans. They also noted last year’s effective tax rate of 17% being 4.5% higher than the Irish corporate tax rate.
On a broader footing, the OECD said that the Luxembourg leaks — yesterday’s information was gleaned from a 28,000 page dossier reportedly leaked by accountancy giant PwC and obtained by the International Consortium of Investigative Journalists — prove that the international tax system in its current guise is flawed.
“Basically, what seems to come out of these leaks is a confirmation that rulings can be potentially harmful where there is lack of transparency,” according to Pascal Saint-Amans, head of the OECD’s centre for tax policy and administration.
“This is one of the elements showing that the international tax system is flawed and needs to be fixed, as proposed by the BEPS [base erosion and profit sharing] action plan. We have not waited for these leaks to take action,” he said.
Taxation experts do not expect tax structures such as those reportedly availed of in Luxembourg by some international firms, in order to lower their tax rates, to survive the OECD’s proposed international policy changes.
“The OECD wants to eliminate the ability to artificially shift profits in order to minimise tax. It also wants to eliminate tax mismatches, where something is allowed as a deduction in one country but not taxed in the other due to differing treatments. The focus on these so-called hybrid instruments should not concern Ireland,” said Peter Vale, tax partner at Grant Thornton.
“The Luxembourg story can be seen in the context of the infamous ‘Double Irish’ tax arrangements and increased publicity surrounding corporate tax arrangements. In time, a tightening of national and international tax arrangements could see tax rates for corporates, including Glanbia, being squeezed up,” said Liam Igoe, food analyst at Goodbody Stockbrokers.
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