Danny McCance 8 Feb 2019 10:37am

UK tobacco industry taxation “wholly inadequate”

Despite reporting “enormous” profits, the world’s four largest tobacco companies are not paying enough UK corporation tax, report says

According to a paper published in the Journal of Public health, “the major tobacco companies operating in the UK are generally not paying UK corporation tax at anything like the level their reported profitability might initially suggest”.

In 2017 £9.5bn was generated from tobacco duties in the UK.

“Taxes are the best weapon we have available to reduce the harms caused by smoking, both in terms of encouraging smokers to stop and in recouping the enormous costs to society,” said Dr Robert Branston, of the University of Bath school of management and paper author.

“But despite the enormous profits these companies enjoy, levels of corporation tax paid are pitiful” he added.

The paper, written by Branston alongside University of Bath professor Anna Gilmore, argued that the UK requires better reporting standards to ensure large tobacco companies can be held to account.

The authors pointed to government research that suggested the cost of smoking to the economy was £11bn in 2017, leaving an estimated £1.5bn shortfall.

The research also found that British-based transnational tobacco companies paid large sums in overseas profits tax and that tobacco companies based elsewhere paid high domestic taxes.

This suggested “this is not an insurmountable issue and that the UK government is particularly poor at taxing this and, most likely other industries too”, Branston said.

“The government must better hold these companies to account and an essential first step is the publication of accurate country-by-country information on sales and profits,” he added.

One of the recommendations included extending the bank levy to cover the tobacco industry.

In 2017, the corporation tax bill for the financial services sector, including the bank levy, ran to a record £14.6bn.

“We’ve taken significant steps – domestically and internationally – to ensure companies pay the right amount of tax on their UK profits,” a government spokesperson said.

“We also charge tobacco duty to ensure that tobacco manufacturers contribute to paying for the costs caused by smoking,” they added.

Simon Cleverly, group head of corporate affairs at British American Tobacco – one of four companies included in the paper – said that in the UK, in addition to corporation tax, the company contributes employment taxes of more than £175m, and more than £1bn in excise and VAT – “making us one of the significant contributors to the UK exchequer”.

He said that for corporation tax purposes UK tax law requires the consolidation of all UK activity, such as the companies domestic cigarette business and other UK-based trading operations.

This also included the company’s potentially reduced risks products business, the head office in London and its global research and development centre in Southampton.

“Additionally, during the 2011-to-2016 period the group made significant additional contributions to the UK pension fund of over £500m, thereby reducing UK taxable income over this period,” Cleverly added.

“In 2017, once we take account of everything we do in the UK our UK corporation tax payment totalled £26m.”

A spokesperson for Imperial Brands – another company included in the study – questioned the paper’s credibility, saying it used “a number of incorrect estimates and assumptions”.

"We are a good corporate citizen and we pay the taxes that are due,” they said.

“We currently pay around £50m to £70m per year in UK corporation tax and our total tax contribution in the UK is around £4.5bn per year, making us one of the highest tax contributors in the FTSE 100,” the spokesperson added.

Imperial Brands did not wish to comment on UK reporting and taxations standards, stating its focus was just on meeting requirements – “which we do”.

Multinationals’ tax affairs continue to make headlines as public anger over perceived tax avoidance remains.

The two remaining tobacco companies included in the paper Phillip Morris International and Japan Tobacco (which operates in the UK through subsidiary Gallaher) – neither of which are headquartered in the UK – have been contacted for comment.