9 Nov 2012

A roasting for Starbucks..but a grilling for Hodge?

On Monday the Commons Public Accounts Committee (PAC) is holding a big hearing on the “taxation of multinational companies”.  The witnesses include representatives of three of the world’s biggest multinational businesses, Google, Starbucks and Amazon.  These firms have often been accused of “transfer pricing” – arranging their internal transactions  so as to achieve the most favourable tax outcome, and to pay as little tax as possible – tax avoidance, which is legal.

No doubt Margaret Hodge, the chairwoman of the PAC, and her colleagues will haul Google and co over the coals for their transfer pricing policies and not paying HM Treasury a lot more tax.

But before she gives these multinational executives a good grilling, I fear that Mrs Hodge may have to declare her own personal financial interest in the subject of transfer pricing.

According to the Register of Members’ Interests, Mrs Hodge owns a “registrable shareholding” in Stemcor Holdings Ltd, the international steel trading firm founded by her late father Hans Oppenheimer, and now run by her brother Ralph.

In 2011 Stemcor had a turnover of more than £6bn.  (“Registrable shareholding” is defined as more than 15 per cent, or more than a parliamentary salary, which I imagine is the relevant criterion here.)

But it seems that Stemcor, too, may have been involved in transfer pricing.

A man called Joshua Barling has said on his profile on Linked In, the internet social networking system for businesses that between February and October of this year he was a “data analyst, structured trade finance”  Stemcor.

In particular, according to Linked In, Mr Barling was “engaging in Stemcor’s transfer pricing project imposing a standardised taxation platform and maintaining group profitability is generated tax efficiently”.

Sought assurances

“Stemcor’s transfer pricing project”, eh?  And “maintaining group profitability is generated tax efficiently”?  Sounds to me just like the sort of thing which the PAC will be discussing with Google, Starbucks and Amazon on Monday.  Maybe I’m wrong.

When I spoke to Joshua Barling this afternoon, he revealed that he had been working as an intern at Stemcor.  Iasked him to explain what the transfer pricing project was, and how many people worked on it.

“I can’t divulge any information about it,” he repeatedly told me.  “I’m not at liberty to say.”  Eventually Mr Barling brought our call to a close.

A spokesman for Stemcor and for Ralph Oppenheimer confirmed to me that Joshua Barling did work in the firm’s tax department for about a week earlier this year and did work on the issue of transfer pricing during that time.

“It’s not some sort of evil tax evasion,” the Stemcor spokesman told me.

“Transfer pricing is not an uncommon thing.  It’s in accordance with OECD guidelines.

‘Slightly inflated’

“We are not denying we do transfer pricing, though it’s slightly inflated what the chap said he did.   We were looking at transfer pricing as a matter of course to ensure it complies with tax legislation and is efficient.

“We are a major taxpayer here.  We want to remain in the UK.  We are a transparent company.”

Margaret Hodge tells me that she has repeatedly sought assurances from her brother Ralph, who is executive chairman of Stemcor, that they are not involved in tax avoidance or transfer pricing.

“Time and time again I have sought assurances to ensure they do it by the books,” Hodge says.

“And I wouldn’t be doing this if they weren’t.  I’ve sought assurances all the time.

“I’ve said as a shareholder that they should do no avoidance.  I have asked him (Ralph) more than once.

“I’m a tiny, tiny, tiny shareholder.  I’ve done the responsible thing as a shareholder in the company.  He has given me 100 per cent reassurance.”

Perhaps the PAC should haul Ralph Oppenheimer before them to explain what Mr Barling was up to.  And they might like to talk to Mr Barling too.

And certainly this revelation is likely to generate some interesting exchanges on Monday.


Stemcor has supplied the following statement:

“Stemcor’s directors and shareholders are proud of the company’s contribution to the UK economy. As well as creating jobs across the UK, Stemcor has also provided financial support to steelworks in the UK, regenerating the local economy. Stemcor has nothing to hide and is happy to provide more detail about its tax affairs to the media if requested.

Stemcor is almost unique among international trading companies in that it still maintains its headquarters in the UK. Most other such companies have located themselves in low tax jurisdictions, while still having sizeable operations in London. Stemcor’s shareholders refuse to countenance such a move.

In the past 3 years, a total of £14m of corporation tax has been paid by Stemcor in the UK. Stemcor’s effective tax rate internationally in the last three years has been over 30%, much higher than that of other international trading companies.

Profits in a trading company cannot be compared to profits in a manufacturing company and turnover is no guide to the level of profits made. Stemcor’s annual report for 2011 shows that total international Group profits were only around 1% of turnover, which is typical for many commodity trading companies. 2011 was not a strong year for the UK operations and margins  were squeezed further due to the adverse economic climate – this resulted in a lower UK corporation tax charge for that particular year.

Stemcor’s consolidated financial statements are audited and signed before the end of March following the December year end and certain assumptions are made in preparing the UK tax computations which support the UK tax charge in those financial statements.  In accordance with UK law, UK corporation tax returns are filed any time up to 12 months following that year end.  The adjustment of a tax credit of £586k in the 2011 financial statements arose as a result of reconciling the Group’s financial statements back to the UK corporation tax returns for 2010, which were calculated and filed on a timely basis based on UK tax legislation.

In any international group which has interaction between its worldwide offices, whether through the trading of goods or provision of services, transfer pricing principles will apply.  Stemcor, in accordance with OECD guidelines, monitors the transfer pricing arrangements between its group companies to ensure that its pricing complies with the arm’s length principle.  Stemcor monitors its transfer pricing arrangements regularly as a matter of course to ensure that it is done correctly and complies with tax legislation. The Group uses Price Waterhouse Coopers as a consultant to ensure that it pays the correct taxation in the various jurisdictions in which it operates around the world and does not abuse transfer pricing to avoid tax. ”

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4 reader comments

  1. Laura Cosby says:

    Michael surely as a reporter you realize when politicians involved it is never a case of do as I do but do as I tell you:)

  2. Peter Coll says:

    You need to careful here. Just because you see transfer pricing does not automatically mean tax avoidance. Stemcor may be using transfer pricing to have profits abroad brought back to the UK to be taxed as opposed to transferred out of the UK. By the fact you have overseas subsidiaries, means you will have a transfer pricing situation unless the only transactions are dividends.

    The PAC should discuss this generally. They could call someone from an Accountancy firm who has spent years selling avoidance schemes or the they could call the head of HMRC. Come to think if it, calling the head of HMRC will kill two birds with one stone!!!

  3. Steve Willis says:

    I am self-employed. This is a life-style choice I made some years ago. Sadly, I am now forced to pay “Forward Income Tax” – this is paying a sum of money based upon my earnings in the previous Tax Year, effectively giving the Government a free loan. It is not guaranteed I will earn a similar amount in this Tax Year.

    “Forward Tax” does not appear to fall upon people who made the life-style choice to be in “employment” and so I can only conclude I’m being discriminated on account of my “other status” arising from my life-style choice.

    I think this breaches Article 14 (Human Rights Act 1998).

    The exclusion clause in Section 6 creates a breach of Article 14 – Prohibition of discrimination –
    The enjoyment of the rights and freedoms set forth in this Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status.

    I plan to complain to various authorities about this because I’m fed up with struggling to make ends meet whilst we have so many cosy tax arrangements for others, including our MP’s who enjoy various Tax & NI privileges including statutory exemptions.

  4. John says:

    It’s their contribution to the UK that’s interesting not that there group tax position that’s interesting. Starbucks group tax charge looks about right too. Would be interesting to know why they have the need for a ‘marketing services’ company in the tax have of Guernsey.

    I’ve gone back to six year to calculate their tax gap. This is based on allocating group profits on the basis of the UK turnover and comparing the expected UK tax on those profits with the actual UK current tax in the accounts, but adjusting any prior year corporation tax adjustments to the correct years
    Before 2009, with one exception, there does not appear to be much of a tax gap but that’s only because they had overall group losses in 2009 and carry back of losses into 2008.
    2006 has a tax gap of £2.5m (on expected profits £18m, 16% effective rate vs 30%).

    More recently the 2011 and 2010 UK tax gaps are £5m and £4m on expected UK profits of £22m and £31m respectively. So the effective tax rate is between 3% and 16% versus an expected rate of between 26.5% and 30% depending on the year in question.

    Why is this? The main UK company has dramatically increased its debt from fellow group companies in the past two years from around £60m to £200m which goes some way to explaining the reduction in UK profits and diminishing UK tax take in recent years (together with the profits siphoned off into the Guernsey and Swiss subsidiaries). It is also loaded up with £360m of external bank debt which presumably is used to fund its overseas ambitions at the expense of the UK tax payer. The debt explains about £2m of the tax gap.

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