How Boots’ Swiss move cost UK £100m a year
In June 2008, after more than a century and a half in the UK, Boots moved out of the country to Switzerland. The British household name had been acquired, along with its parent company, Alliance Boots, in Europe’s largest private equity deal in 2007, thanks to £9.3bn of borrowing from banks and other investors. The deal squeaked in with this enormous burden of debt just before the credit crunch brought such lending to a jolting halt. Private equity’s gain turned out to be the UK revenue’s loss.
Interest payments on the Alliance Boots debt in 2008 were so large they wiped out profit in the UK – and the tax that used to go with it. HMRC rules allowed the company to set interest payments on its debt against profits for tax purposes, a benefit to investors that has helped drive private equity deals.
Ten years ago the Boots group generally paid about one-third of its profits in UK tax. The Revenue could expect to see a tax charge around the £120-£150m mark each year, with over £100m of that coming from Boots the Chemist.
Then came the move to the low-tax Swiss canton of Zug. Alliance Boots GmbH is now registered at Zug’s 94 Baarerstrasse, an address that is home to a post office. After huge interest payments, its worldwide profits last year were £475m. It is hard to see which parts of the company are now making what, but the cashflow statement for the year to March 2010 shows that just £14m was recorded as the tax charge on those profits – that is, just 3% of profits. John Ralfe, the former head of corporate finance at Boots, told us he calculated that, “the UK has lost about £100m a year in tax as a result”.
The company said in a statement: “Alliance Boots and the companies of its group comply fully with all applicable tax laws in each of the countries where they do business, including in the UK. Boots is our pharmacy-led health and beauty retail business in the UK. It is a British business which continues to have its headquarters in Nottingham and is VAT registered. We remain committed to the local communities in which we operate, employing 75,000 staff across offices and retail stores in the UK.”
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