Cadbury’s corporation tax bill leaves a nasty taste

Well if that doesn’t take the biscuit.

Not only have we been forced to watch Cadbury – a venerable British institution founded by Quakers – get swallowed by a maker of “American plastic cheese” but now it turns out that that new owner isn’t even paying any corporation tax here in the UK.

According to its accounts, Mondelez UK – which owns everything from Cadbury Fingers to Dairy Milk chocolate bars, as the UK subsidiary of Mondelez International – had a decent year in 2017. Turnover crept up to £1.66bn in 2017. But profits soared to £185m, from £22m in 2016, thanks to a dividend from some other downstream companies in the group.

The current UK headline corporation tax rate, levied on profits, is 19 per cent. That would seem to imply a bill due from Mondelez of £35m. But no such luck for government coffers. No such help for our wheezing public services.

In fact, the confectioner paid zero in corporation tax. Actually, it claimed a tax credit from HMRC of £320,000, while simultaneously paying out a £247m dividend to its parent company.

“Time and time again we’ve warned the government that this type of behaviour is unacceptable,” says the shadow chancellor John McDonnell.

And it’s true. This kind of “profit shifting”, in order to avoid corporation tax, is a news story that feels almost as old as Fry’s Turkish Delight (launched in 1914, acquired by Cadbury in 1919).

Just about every multinational operating in the UK has been found doing something similar at one time or another to minimise their corporate tax liabilities.

So why does it keep happening, despite the cycle of outrage from the public and continual promises from ministers that they will crack down on it?

The simple answer is that politicians are still shying away from radical surgery of our corporate tax system to cope with multinational behaviour in the hope that tinkering will do the trick.

David Cameron pushed for a tightening of the OECD rules on corporate profit shifting. But this was always oversold as a solution, since it was so hard to police.

It seems the government has accepted that failure, because we now hear plans from the Treasury for a special tax on digital revenues (rather than profits) to prevent profit shifting out of the UK from the likes of Google and Amazon.

But this, again, seems destined to be leaky given the asymmetric warfare between accountants and HMRC. Plus it would also only deal with tech firms, not chocolate manufacturers like Mondelez.

There is only one effective multilateral solution for this kind of tax avoidance and that is establishing an international system of “formulary apportionment”. In other words, we need to agree with other countries around the world how we will divide the cake of a multinational’s global profits, based on how many people it employs in each country, its share of sales, its share of corporate activity and so on. The chances of seeing that materialise in the era of Trump, Brexit and fraying multilateralism feels as promising as the consistency of a creme egg in a microwave set to high power.

But there is a domestic route too, which is to tax multinational corporations’ domestic corporate cash flow, rather than their reported profits. This is something that Donald Trump looked at early in his presidency – perhaps his one good idea. Trump has dropped it. Our own government – or a new one – should get some sticky fingers and pick it up.