Demonstrators are staging a protest at Topshop in central London over Sir Philip Green's tax affairs

[Jan Klimkowski]

Richard Murphy was the independent accountant who exposed all the lies and anomalies in Northern Rock's books.

Meanwhile:

The group alleges that Sir Philip deliberately tried to avoid paying hundreds of millions of pounds of UK tax by channelling £1.2 billion worth of funds from his Arcadia retail empire into an offshore vehicle registered to his wife in Monaco.

See here:

It’s true Green associates (and we can put it no better than that) received a dividend of about £1.14 billion. But a closer look at their accounts might suggest that this was not a pay day, more a financial architecture day. The reason is simple. A dividend is paid out of accumulated profits. But at the end of August 2004 (its year end date) the Arcadia Group had £291 million on its P & L account. In the year to August 2005, when the dividend was paid it earned after tax profit of £185 million (all data from Arcadia Group results announcement, by the way). That gives a maximum apparent positive balance of £476 million, out of which a dividend totalling £1,299 million in all was paid.

The result was obvious. At 27 August 2005 the profit and loss account had a deficit of £820 million on it and the overall accounts showed a deficit of £807 million. Borrowings grew by over £900 million in a year, which seems to have been used almost entirely to finance the dividend. The Arcadia Group parent company, Taveta Investments Limited showed a broadly similar consolidated position.

Now, I’m not for one minute suggesting wrong doing here. But my reading of the Companies Acts says dividends can only be paid out of accumulated realised profits, and my practical interpretation of this has always been that if a dividend leaves the profit and loss account overdrawn you do, at least in theory, have a problem to deal with.

No doubt PWC (who did not mention the issue in their audit of Taveta) found good reason why this was not an issue, and I’m sure advice was taken from learned friends, so all is fine. But given that the Greens did not pay tax on this deal it looks rather more like a bit of sophisticated financial engineering to me than the UK’s biggest corporate pay day.

Oh, and as usual there is a Jersey dimension to this story. Taveta Investments Limited in the UK is owned by a company of the same name in Jersey (just to confuse things) and it is owned by two nominee companies that appear to own each other. Which makes things as clear as mud when it comes to working out what’s going on.

http://www.taxresearch.org.uk/Blog/2006/...avoidance/