M&S in the spotlight for Irish tax practices

Retailer Marks & Spencer has become the latest in a line of UK based companies to have the spot-light shone on its tax-practices.

According to reports in The Guardian, the retailer is using its Irish operations to account for goods sold and shipped from the UK.

Orders made through its www.marksandspencer.eu site by customers from France, Germany, Ireland or other countries, are shipped from M&S’s UK warehouses - but the transactions are all made with, and charged to, Marks & Spencer (Ireland) Limited, a subsidiary located in the Ireland.

M&’Ss UK branch is paid a wholesale price for the goods it ships by M&S Ireland, and this is subject to UK corporation tax, but the rest of the retail mark-up is subject to Ireland’s much lower corporation tax rate of 12.5 per cent, The Guardian says.

While the practice of "transfer pricing" is perfectly legal, its use by other multinationals such as online retailer Amazon, has led to outspoken opposition.

Earlier this year, after George Osborne announced a further cut to UK corporation tax in his 2013 budget, The Guardian reports that an M&S employee sent an email to a superior questioning the need for the complex operation of Marks & Spencer's international site, giving their personal view as to why the structure existed:

“Given that it was developed as a means to avoid UK corporation tax when it stood at 26% it now seems appropriate to reassess this,” it read. “Corporation tax will be 21% by next year. Does this not render many of the advantages of having an Irish company obsolete?

"From a tax management perspective there may have been advantages in avoiding the UK 26% tax rate but the process and IT overhead with the additional VAT complexity may negate these advantages. Needless to say there is also the reputational damage to M&S should it be seen to be avoiding UK tax in the current climate, as seen with recent examples such as Starbucks [AND]Amazon."

Marks & Spencer said Ireland was used to host the website as it was the largest international market for M&S, and therefore the logical host for the EU site. It said: “M&S is a major UK taxpayer, contributing over £800m to the UK exchequer in 2011/12.

“We pay UK corporation tax on all profits generated by UK sales and comply with the tax laws of all jurisdictions in which we operate. We conduct our tax affairs in a transparent and legally compliant manner that is consistent with our longstanding values and complies with the tax laws of all jurisdictions in which we operate.

“Our European websites are owned by M&S Ireland. This is made clear to all customers shopping on our European websites. Ireland is our largest international online market, taking over 50% of our online European sales, which is why we structure our other European websites around it. It would not make good business sense for us to set up anew in every market we enter.

“These are not UK sales, these sites do not serve UK customers and there are no sales made in sterling. All tax is legally and fairly paid both in the UK and in Ireland.”