US computer giant IBM shrinks its UK tax bill with obscure accounting techniques

| August 18, 2012 | 0 Comments

Peter Campbell

16:18 EST, 17 August 2012


16:18 EST, 17 August 2012

American IT behemoth IBM has used obscure accounting techniques to slash its UK tax bill to a small fraction of its £3.8bn sales.

The global computer giant makes billions of pounds a year from highly lucrative government contracts, but has arranged its accounts so it pays just 7 per cent corporation tax.

After making sales of £3.8bn in 2010, the most recent year where a full set of UK accounts is available, the group paid just £21.7m to the Exchequer.

Obscure accounting techniques: IBM only pays seven per cent corporation tax

Obscure accounting techniques: IBM only pays seven per cent corporation tax

It even openly admits it should have paid £83.7m to Her Majesty’s Revenue and Customs after making pre-tax profits of £299m.

But the firm employed a plethora of complicated accounting measures to whittle down the amount it owed to the Treasury.

Its workings were so complicated they even baffled tax experts. And because the firm is based in Ireland, it can funnel some of its profits across the Irish Sea where they will be charged at a lower tax rate.

The full extent of its profits made on British soil may therefore be even higher. But even on the earnings declared from its UK branch, IBM should have paid 28 per cent corporation tax, the rate that applied in 2010.

Instead it only paid £21.7m – an effective tax rate of just 7.2 per cent. This compares to the previous year when it paid £64.8m after making profits of £169.5m.

The vast difference between the two numbers is explained in a note buried deep within its 74-page annual accounts.

Even after studying the accounts tax experts, who confirmed the Mail’s figures, said they ‘couldn’t give a complete explanation’ for the difference.

They said the group used a raft of measures to offset its bill. Some are run-of-the-mill deductions, such as a £10m tax credit for carrying out research and development work in the UK.

But others are far less transparent. The largest measure, described as ‘movement in unrecognised deferred tax’, subtracted £126.5m from the bill. It is believed this could include changes to the liabilities of its pension scheme.

Despite making a minimal contribution to government coffers, the firm benefits enormously from its highly lucrative British operations.

The company holds large government contracts to provide wide-ranging IT services – work which guarantees to generate billions of pounds of income over long periods of time.

In 2010, its UK arm declared revenues of just under £4bn. Much of this comes from state work. A company spokesman said: ‘IBM complies with all tax rules in the UK.’

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another fine mess left by the Labour goverment, why didnt they sort out these tax issues while they had 13 years to do so.

So I am paying 20 percent taxes plus 11 percent in NI = 31 percent of income. They made 3.8B in income and pay only 7%? Who is a monkey?

Well Mr schoolboy chancellor George in short trousers – why don’t you get companies like this to actually pay the actual value of corporation tax.
Useless idiot.

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