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Is tax planning helping the food discounters?

It’s been a funny week in tax, and it’s only Wednesday, as I’m writing this.

New figures released today suggest that fierce competition in the supermarket sector has driven food price inflation to record low levels as the Big Four grocers fight back against the likes of Aldi and Lidl. This is good news for consumers, but there is a growing suspicion that careful international tax planning is a component in the discounters’ success in taking on traditional high-street (or out-of-town) names such as Sainsbury and Tesco.

Some commentators point at Lidl UK which seems to acquire most of its stock, management and administrative support from its German parent. As a result, UK profits are low, as is Lidl’s UK tax liability. If the big UK retailers begin to take a stake in discounters – for example, Sainsbury is reported to be taking to take a half share in a new Netto chain with the Danish parent – they too may adopt some of the structures. Of course, with the UK headline corporation tax rate now heading firmly towards 20%, those structures may have to be adjusted in favour of the UK if companies wish to minimise their global tax liabilities. In time, we may see more profits taken in the UK.

All of this, of course, is part of a continuum. While big UK retailers and the discounters occupy different parts of the spectrum, elsewhere traditional high street shops continue to struggle. To this is added today’s announcement from JD Wetherspoon which blames aspects of its results on “tax inequality between pubs and supermarkets”, particularly VAT and business rates.

The lesson to be drawn from all of this is simple: like it or not, clear tax policies which a government intends to apply uniformly across all business will inevitably produce winners and losers.

Talking of winners and losers, a large swathe of public opinion is opposed to tax avoiders. So news that many loved and admired household names – some of whom have received accolades for high ethical standards in the way they approach their tax responsibilities – have allegedly engaged in an artificial tax avoidance scheme has attracted wide coverage. The scheme itself, which was apparently closed in 2008, attracted considerable attention when news of its existence was publicised in October 2012. Today’s news identifies more of the alleged participants in the scheme. Using its new powers, HMRC is expected to send out tax demands totalling £1.2bn over coming weeks.

This was posted in Bdaily's Members' News section by George Bull .