Ad Agency WPP Now So Powerful That Britain Will Change Its Tax Code to Please CEO Sorrell

Last Updated Jun 29, 2010 2:01 PM EDT

WPP (WPPGY), the largest ad agency holding company in the world, is pitting the governments of Ireland and the U.K. against each other in a race to the bottom over corporate taxes. Corporations frequently squeeze city and U.S. state governments for tax breaks by threatening to move their operations elsewhere, taking their tax payments with them. It's a measure of how powerful multinational corporations have become that WPP can now do this to entire countries, and CEO Martin Sorrell can hold his negotiations with the governments in public without the slightest hint that there's something undignified about chiseling cash-strapped nations during the worst recession since the 1930s.

You'd think that vast sums of cash are at stake, but there aren't: WPP expensed just £77.2 million less in tax last year after it moved its mailing address from London to Dublin. The company -- which owns agencies such as Ogilvy & Mather, Young & Rubicam and JWT -- made £8.7 billion in revenues in 2009.

In April, before the election that returned the Conservative Party to power for the first time in 13 years, Sorrell endorsed premier David Cameron's promise to make the UK tax code more lenient on corporations: "If they make a positive decision I am sure the board would look at it favourably," he said, as if the government were a supplicant to the board of WPP.

In response, Conservative shadow chancellor George Osborne specifically signalled that he would do Sorrell's bidding:
Under [former Labour Party prime minister] Gordon Brown the British economy has become increasingly less competitive, with the result that some of the UK's most successful businesses have moved offshore. We want those businesses back and the return of WPP would be a fantastic first step.
Now it appears that Osborne will be fulfilling his promise to Sorrell by reducing the corporate tax rate from 28 percent to 24 percent. Sorrell continues to hold the government's feet to the fire. The Conservatives have merely promised a "review" of the tax code, he noted:
The government has fulfilled its election pledge to conduct a review ... That will take a year or so and has only confirmed the uncertainty and will make others contemplate their course of action [as well]. We never said we would move [back] because a review was taking place.
Sorrell's angling, and the Tories' agreement to do as they're told, comes despite Osborne's own worries that the country is on the verge of bankruptcy and has a national deficit of 11 percent of GDP. And it doesn't stop there. Having apparently bested the U.K. at the corporate tax bargaining table, Sorrell told the Guardian he'd like the government to do something about its new capital gains tax hike, perhaps by putting a time-limit on the increase. He said:
The first is that there is no time clause attached to the rise in capital gains tax to 28%. "It is not right. It is not the issue of paying more capital gains tax it is that it is the same if you own something 25 minutes as 25 years," he said. "It seems distinctly discriminatory and unfair."
Don't be surprised if the Brits acquiesce to that one, too.

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