Friday, July 23, 2004
Honda, Nissan face UK tax probe
John Plender / London July 23,2004
The Inland Revenue has been investigating UK subsidiaries of two of Japan’s biggest motor companies over transfer pricing.
The companies are Honda Motor Europe, which acts as the Honda group’s European re-invoicing centre, and Nissan Motor (GB), the distribution and marketing arm of Nissan in the UK.
Transfer pricing is a practice whereby multinational groups can, for example, price goods at lower than market value to shift profits into low-tax jurisdictions.
The investigations reflect friction between tax authorities and multinational enterprises around the world. They also raise questions about the recoverability of big tax losses racked up in the UK by the Japanese vehicle manufacturers.
The Inland Revenue said transfer pricing inquiries “are focused on cases where it appears that there is a significant risk that taxable profits might have been materially under-reported”.
Within Europe, Britain is regarded as a high-tax jurisdiction, giving the UK subsidiaries of foreign multinationals an incentive to under-invoice goods to fellow subsidiaries in lower-tax jurisdictions such as Ireland and the Benelux countries.
An investigation by the Financial Times into the foreign-owned component of the UK corporate sector raises questions about the effectiveness of transfer pricing rules applied by tax authorities around the world.
The FT has established that subsidiaries of Honda, Nissan and Toyota have incurred tax losses of more than £1 billion, which can be offset against future trading profits only by agreement with the Inland Revenue.
The latest accounts filed by Honda Motor Europe with the UK registrar of companies at Companies House say that “the Inland Revenue is currently conducting certain taxation reviews that involve the UK group, principally an inquiry into transfer pricing”.
The company has trading losses carried forward, which would normally be available for offset against future profits, of £216 million. Honda declined to comment.
At Nissan Motor (GB), the Inland Revenue has questioned the company’s transfer pricing policy back to its date of incorporation in 1990.
Nissan told the FT that the inquiry by the Inland Revenue had been resolved, but would not say on what basis.
Nissan is alone among the three big Japanese motor companies in the UK in reporting profits. Records at Companies House show that Nissan Motor Manufacturing (UK) declared a pre-tax profit of £17 million on sales of nearly £2 billion in the year to December 31 2002, while Nissan Motor (GB) also showed pre-tax profits of £17m on sales of £1.1 billion.
In the year to March 31 2003, Honda Motor Europe disclosed a pre-tax loss of £6 million on sales of £3.4 billion, and the pre-tax loss at Toyota Motor Manufacturing (UK) for the same period was £116 million on sales of £1.4 billion.
Toyota’s latest accounts say nothing about transfer pricing, but they point out that the availability of £716 million of losses to be offset against future trading profits is subject to agreement with the Inland Revenue.