Over the past ten days, several comments have appeared in the press suggesting that Stemcor is involved in aggressive tax avoidance in the UK. Stemcor refutes these allegations and issued a statement on November 10th explaining the reasons for the low tax charge in the UK in 2011.
Today, The Telegraph printed excerpts from a letter sent from Priti Patel MP to Margaret Hodge MP in which these allegations are perpetuated. Stemcor would like to respond to the points raised by the Hon Ms Patel with the following:
Margaret Hodge’s shareholding in Stemcor
2,399,600 shares in Stemcor are currently held in Margaret Hodge’s name. This excludes shares held in trust or in her children’s names. The shareholding equates to 1.26% of the total share capital and the current value of the shareholding is £1.8m. Although Margaret Hodge is a shareholder, she is not involved in the running of the business in any way whatsoever.
UK tax paid in 2011
Over the past five years Stemcor has paid £27m in UK Corporation Tax, an effective tax rate of 32% based on UK generated profits. This compares to an average corporate tax rate in the UK for the same period of 28%.
A high turnover gives no indication of profit. Corporate tax is levied against profits, not turnover. As a trading company, Stemcor’s profits tend to be only around 1% of turnover and, in difficult economic conditions, profits are quickly eroded. The tough economic environment in the UK squeezed margins during 2011, resulting in a loss of £2.9m on UK operations, which reduced Stemcor’s UK tax payments compared to prior years. In 2009, by contrast, despite the fact that the Stemcor Group globally made an overall loss of £16.5m, a profit was made in the UK and consequently £8.5m was paid in tax that year in the UK.
Stemcor is a group of operating businesses with physical presences in many different jurisdictions across the globe. Taxes are paid on profits (at rates of up to 40%) to the local tax authorities at local rates, be they in Australia, the USA, the Far East or Europe. In recent years, economic activity has been low in Europe, including the UK, resulting in little or no profit being generated in this region. However, results elsewhere have been much stronger, resulting in tax paid on overall profits of 41% and 39% in 2011 and 2010 respectively. These are clearly much higher rates than the current UK Corporation Tax rate and show that Stemcor is in no way a tax avoider. Total taxes paid globally on profits by Stemcor in 2011 amounted to £33.9m
‘Transfer pricing’ is not synonymous with ‘tax avoidance’. In any international group which has interaction between its worldwide offices, whether through the trading of goods or provision of services, transfer pricing will apply. Stemcor, in accordance with the OECD guidelines, monitors the transfer pricing arrangements between its group companies to ensure that its pricing complies with the arm’s length standard. This is legally required by the tax authorities in most of the countries in which Stemcor operates. Other international companies may possibly use transfer pricing to avoid or evade tax in high tax jurisdictions. Any suggestion that Stemcor has followed such practice is libellous. Stemcor does not abuse transfer pricing, as evidenced by the fact that tax has been paid at higher rates in overseas jurisdictions than would have been paid in the UK.
As declared in the statement dated November 10th and published on the Company’s web site, Stemcor has nothing to hide and would be happy to provide more detail about its tax affairs to the media if requested. Stemcor’s annual reports for the past five years are available to anyone who requests them via www.stemcor.com