Severn Trent spent £19m fending off takeover approach

Water company says higher prices across economy and 'quasi taxes' will push up its operating costs

Severn Trent has revealed that it ran up a £19m bill – almost 9% of this year's pre-tax profits – fending off a takeover approach.

The water company rejected a third and final offer in June from LongRiver Partners, a consortium of Canadian, British and Kuwaiti infrastructure investors.

Severn Trent's board decided that the proposed £5.3bn offer, at £22 a share, undervalued the future potential of the business, although LongRiver argued it was "a full and fair price" for the company, which supplies water and sewerage services to 4.2 million households in the Midlands and Wales.

In a trading statement, Severn Trent said the saga cost it £19m in "advisory, legal and other services". This is almost 9% of the pre-tax profits of £215m the company earned in the year ending 31 March.

Severn Trent's advisers included Rothschild, Citi, Barclays, Morgan Stanley and the financial PR firm Tulchan.

Severn Trent customers' bills rose by 2% on 1 April, which the company attributed to rising inflation. The statement said higher prices across the economy and "quasi taxes" would push up its operating costs.

Water companies are seen as an attractive investment because they are regulated industries with a constant demand for their services.

The failed LongRiver consortium was led by Borealis Infrastructure Management, the infrastructure investment arm of a Canadian local authority pension fund. The other members were the UK's University Superannuation Scheme and the Kuwait Investment Authority, a sovereign wealth fund.

Takeover rules bar the consortium from making a fresh bid for at least six months.

Article Source : http://www.guardian.co.uk

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Deloitte appoints official criticised over 'sweetheart' tax deals

Dave Hartnett has been hired by accountancy firm which faced tax avoidance allegations during his time as head of HMRC

The row over tax avoidance by multinational companies escalated on Monday night as it emerged that Dave Hartnett, until 10 months ago the country's leading tax official, has been appointed to a new position with a leading accountancy firm mired in the controversy.

Hartnett will work one day a week with Deloitte, the auditors for Vodafone and Starbucks, which faced tax avoidance allegations during his time as head of HM Revenue & Customs.

The appointment was approved by David Cameron and the advisory committee on business appointments last week, although Deloitte did not announce the high-profile signing.

The appointments committee added a list of six caveats to its approval letter, designed to ensure Hartnett does not share any information about how to avoid UK tax and to guard against potential conflicts of interest.

But tax campaigners and MPs criticised the appointment and suggested that although Hartnett cannot advise UK organisations, he could use his knowledge to strengthen the positions of offshore tax havens.

Hartnett, 62, will advise overseas governments on how to implement "effective tax regimes".

An HMRC lifer until his retirement, Hartnett was heavily criticised for agreeing a number of "sweetheart deals" with major corporations including Vodafone and Goldman Sachs in the UK.

Earlier this month, a judge found that a deal brokered by Hartnett with Goldman Sachs, which saved the US bank £20m in interest payments, was lawful but "not a glorious episode in the history of the revenue".

Mr Justice Nicol said the deal had been agreed by Hartnett to save the chancellor, George Osborne, from potential embarrassment, and criticised the fact that it had been done behind closed doors and without proper approval or reference to lawyers. Hartnett was said to have personally negotiated a deal with Vodafone, which saw the telecoms business pay £1.25bn of an alleged £6bn tax bill. Vodafone disputes this figure.

 A spokesman for Deloitte said: "Dave Hartnett will work as a consultant to Deloitte advising foreign governments and tax administrations, primarily in the developing world. He has significant experience in advising such countries on the development of effective tax regimes, necessary to ensure their continued economic growth. He will not work with UK companies or with HMRC."

The new job comes four months after Hartnett was appointed as an adviser to banking group HSBC on financial risks and crime. The bank was fined $1.9bn (£1.3bn) by US authorities last year for laundering Mexican drug money.

Confirming his appointment, the advisory committee on appointments said it was noted that "whilst working in government, Mr Hartnett did have official dealings with Deloitte, and he also dealt with a wide range of major accountancy and law firms during his time in HMRC and the Inland Revenue before that".

Labour MP John Mann, who sits on the Treasury select committee and questioned Hartnett on several occasions, criticised the appointment. "It shouldn't be allowed. It is all-too-cosy relationships that is the problem at the heart of HMRC.

"It would be a strange government that would employ him considering the problems we've had trying to get our tax system in order, especially when he personally negotiated the deal with Vodafone.

"It gives the wrong message to a group of staff [at HMRC] who are already some of the most demoralised workers in the country."

Deloitte and the other "big four" accountancy firms – KPMG, PricewaterhouseCoopers and Ernst & Young – have all been criticised for using knowledge gained from staff seconded to the Treasury to help wealthy clients avoid paying UK taxes. Richard Murphy, of Tax Research UK, called the latest switch from the state to the private sector "the creeping control of the state by the big business elite".

He said: "We've had people who are very senior who have moved over to big business, but never the very top. He was meant to be the taxman's taxman."

He suggested that Hartnett may be called upon "to advise on tax avoidance in offshore locations".

The prime minister accepted the committee's recommendation that Hartnett be allowed to join Deloitte, but set a series of rules on what he can and cannot advise upon while working for Deloitte.

The rules laid down state that Hartnett should "not draw on any privileged information" from his time at HMRC. He must also not advise "any taxpayer that he has been involved with whilst at HMRC" and must ensure he "has no involvement in discussions with other fiscal authorities of UK's confidential tax policy".

He is also not allowed to personally lobby the government for at least a year.

Hartnett had a close relationship with Deloitte during his time at HMRC and met senior British partner David Cruickshank 48 times between 2007 and 2011, including meetings about Vodafone, one of Deloitte's clients.

Deloitte also signed off the accounts for coffee company Starbucks. The chain faced a backlash among customers last year when it emerged that it had, quite legitimately, paid no corporation tax in the past three years by channelling its revenues through Luxembourg and Switzerland.

Murray Worthy, a spokesman for UK Uncut, who recently brought an unsuccessful court case against HMRC for the sweetheart deal with Goldman Sachs, said Hartnett had been "welcomed with open arms by the people he was supposed to have been regulating".

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Article source : http://www.guardian.co.uk

Google chairman Eric Schmidt softens line on tax loopholes

Boss of search engine says international tax law could benefit from reform – a marked shift in tone from December remarks

Google's chairman, Eric Schmidt, has said he welcomes promises by international leaders to crack down on tax loopholes exploited by the search firm and other multinational internet businesses that take billions of pounds of sales from the UK through overseas companies, which HM Revenue & Customs cannot tax.

"Given the intensity of the debate, not just in the UK but also in America and elsewhere, international tax law could almost certainly benefit from reform," he conceded in the Observer. He said an action plan from the Organisation for Economic Cooperation and Development, due to be presented to the G20 in July, was now "hotly awaited".

OECD officials have already signalled that the plan will include "updated solutions to the issues related to jurisdiction to tax, in particular in the areas of digital goods and services".

An OECD positioning paper published in February said: "Developments brought about by the digital economy are putting increasing pressure on … well-established [tax] principles. In an era where non-resident taxpayers can derive substantial profits from transactions with customers located in another country, questions are being raised as to whether the current rules ensure a fair allocation of taxing rights on business profits, especially where the profits from such transactions go untaxed anywhere."

Google's chairman, Eric Schmidt, said a tax action plan from the OECD was hotly awaited.

Schmidt's latest remarks on tax represent a marked softening in tone. In December he dismissed critics, saying: "We pay lots of taxes; we pay them in the legally prescribed ways. I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate."

But the Google boss now appears to accept that many of those "tax incentives" are in truth loopholes that have opened up as technological innovation has allowed companies to operate in ways unimaginable by those who drafted international tax rules.

Schmidt said he also supported moves by David Cameron to use Britain's presidency of the G8 to tackle tax. "The UK government has the perfect opportunity to take the lead in shaping this complex debate at the G8 summit next month. We hope [it] seizes the initiative and makes meaningful tax reform one of the top items on the agenda."

On Monday Schmidt will meet the prime minister, along with other multinational business leaders who sit on his business advisory group. One pressing issue for all is likely to be growing calls for big business tax reform. Bosses of BAE Systems, Tata Group, GSK, Vodafone and John Lewis will all be keen to give Cameron their perspective before the G8 meeting in Northern Ireland next month.

The prime minister has already signalled he wants to use Britain's presidency of the G8 to tackle "aggressive tax avoidance" by multinationals. "Some forms of avoidance have become so aggressive that I think it is right to say these are ethical issues," he told the World Economic Forum in January, urging multinationals to "wake up and smell the coffee".

The meeting comes after a dreadful week for Google during which its northern Europe boss, Matt Brittin, was recalled to appear before angry MPs on the public accounts committee to clarify testimony on the group's tax arrangements he gave to parliament six months ago.

Google did £3.2bn of business with UK advertisers and media buyers last year but told HMRC these transactions were technically "closed" in Ireland, and therefore not liable for UK tax. Brittin told MPs he stood by earlier evidence that his 1,300 employees in the UK – more than half of whom work in marketing – did not close sales.

The MPs were armed with evidence from several whistleblowers, former Google UK workers who told the politicians they believed they were negotiating and closing sales in the UK.

One of those whistleblowers, who worked for Google between 2002 and 2006, has spoken out publicly for the first time. "When I was at Google, our job was to find advertisers, to close the deals [and] to get them to sign bits of paper saying they were committing to spending in the UK," Barney Jones told the Sunday Times. "If that is not closing the deal, I don't know what is."

 He told the newspaper he planned to hand more than 100,000 emails and other internal Google documents to HMRC tax inspectors. Lawyers from the search firm are not expected to try to block him from doing so.

"Google has pulled the wool over the eyes of HMRC and the British population," said Jones. "[It] has prided itself on being a socially responsible company and to pay your tax is the most fundamental responsibility. This is a betrayal of everything that Google stands for."

The search firm is known for its motto, "Don't be evil", which was enshrined in the group's $23bn stock market flotation prospectus in 2004. It said: "Don't be evil. We believe strongly that in the long term, we will be better served – as shareholders and in all other ways – by a company that does good things for the world even if we forgo some short term gains. This is an important aspect of our culture."

But the words of the motto were turned against the group last week when – unimpressed by Brittin's evidence – Margaret Hodge, chair of the public accounts committee, rounded on him. "You are a company that says you 'do no evil'. And I think that you do do evil." She said the group's approach to tax in the UK was "devious, calculated and, in my view, unethical".

Google held on to its "Don't be evil" motto since it was first sent down in a list of ten guiding principles drawn up by founders Larry Page and Sergey Brin in the earlier years. Along with "you can make money without doing evil" and "democracy on the web works" on the list is "you can be serious without a suit".

Earlier this month Schmidt admitted he had initially considered the "Don't be evil" motto "the stupidest rule ever". However, in an interview with National Public Radio in the US, he added that he later discovered it did in fact provided a helpful check on sharp practices.

"So what happens is, I'm sitting in this meeting, and we're having this debate about an advertising product. And one of the engineers pounds his fists on the table and says, that's evil. And then the whole conversation stops, everyone goes into conniptions, and eventually we stopped the project. So it did work."

Not everyone agrees. In 2010, Welsh rock band Manic Street Preachers included a final track on their Postcards from a Young Man album, Don't be evil, a bitter take on online corporate culture.

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Article source : http://www.guardian.co.uk