WPP Pays Almost No UK Tax; Used "Spider Web" of Debt, Foreign Countries to Avoid Obligations

(MoneyWatch)  WPP pays almost nothing in taxes to its headquarters country, Britain, due to an elaborate series of schemes that shelter its operations in places like Luxembourg, Ireland and Holland.

Here's a digest of this must-read piece in the Guardian (coupled with the usual commentary):

... the surprising truth is, that far from forking out ?£200m a year to the UK in corporation tax, WPP has paid very little on that score in recent years. It has instead made acquisitions and piled up debt in the UK, enabling it to claim large amounts of tax relief on the interest. WPP's ?£200m tax payments went almost entirely to other countries.

BNET readers first learned of WPP's debt levels on Dec. 4. The debts are large but manageable. The ratings agency Fitch cut its assessment of WPP's debt quality and suggested layoffs and compensation reduction to balance the leverage back in November. Indeed, WPP followed suit and dozens of folks have been laid off at WPP agencies. To sum up, WPP chief Martin Sorrell kept his company indebted, that helped him avoid tax, but to support the debt he reduced expenses by laying people off.

The Guardian continues:

WPP appears to have ingeniously reorganised itself with even more hard-to-grasp spiders' webs of legal entities.

WPP had no UK corporation tax to pay last year. Its average UK tax charge over the last six years, taking into account claimed reliefs, has been less than ?£5m, against global profits averaging ?£500m a year.

WPP sources say a reason for low charges was it incurred external debt in the UK and claimed tax relief on the interest.

Most surprising of all is that the brand names of some of its major agencies no longer belong to the agencies proper:

Rights to the J Walter Thompson agency name, the Grey group and the Hill & Knowlton PR firm now belong to an obscure entity called "WPP Luxembourg Gamma Sarl", which will be liable to low taxes in both Luxembourg and Ireland.

Hat tip to George Parker at Adscam.

• See BNET's previous coverage of WPP's finances:
• WPP to Lay Off "Several Thousand" on Accounts Where Staff Cost More than 60% of Revenue
• Ogilvy Cuts 150 Jobs; First of "Thousands" Expected at WPP
• Sorrell Used WPP Stock as Collateral for Personal Loans
• WPP Leaves U.K. for Ireland to Avoid Tax
• IS WPP at Risk of Breaching Its Debt Obligations?
• Fitch Cuts WPP's Debt Rating; Suggests Pay Reductions