S&P 500’s Cooper Warns on $42 Million U.K. ‘Google Tax’ Charge

By Benjamin Stupples

The Cooper Companies Inc., a member of the Standard & Poor’s 500 Index, has warned shareholders over its 31 million-pound ($42 million) “Google tax” charge from the U.K.’s tax authority.

The process for disputing the charge “can be lengthy and could involve litigation,” the Pleasanton, Calif.-based maker of contact lenses and surgical tools said in its 2017 annual report. The company plans to “vigorously” contest the bill from Her Majesty’s Revenue and Customs, it added.

The charge relates to the diverted profits tax that the U.K. introduced in 2015 amid concerns Google parent Alphabet Inc. and other global tech companies were engaging in abusive tax planning to shift profits to offshore havens. The measure sets a 25 percent levy on profits that HMRC deems to have improperly avoided U.K. corporation tax, currently set at a rate of 19 percent.

30 Days to Pay HMRC

Under the U.K. DPT laws, companies must notify HMRC if they have arrangements that may be in scope of the tax. If HMRC believes DPT is due, it first issues a preliminary notice. A charging notice from the tax authority sets out its demands for DPT, giving companies 30 days to pay.

A Cooper Companies spokeswoman didn’t respond to Bloomberg Tax’s requests for comment on whether the business had already paid the 31 million-pound charging notice to HMRC.

In its annual report, filed Dec. 22, Cooper Companies said it received HMRC’s charging notice Dec. 20. The bill relates to the transfer of intellectual property rights connected to the company’s $1.2 billion buyout of U.K. contact lense business Sauflon Pharmaceuticals Ltd. in 2014., it added.

Paul Rutherford, a London-based tax partner at global law firm DLA Piper, told Bloomberg Tax it is likely that many of HMRC’s DPT inquiries will relate to intellectual property, such as patents.

“Those assets are often readily movable to lower-taxed jurisdictions, and in the modern economy frequently represent a significant part of the value of a multinational’s business,” he said Jan. 10 by email.

Ian Hyde, a London-based tax partner at global law firm Pinsent Masons, told Bloomberg Tax that making large payments for the use of intellectual property is one of the main ways HMRC believes multinational companies are extracting profits from the U.K.

Intellectual property “is also an area which is likely to give rise to disputes as it is much more difficult to value than, for example, goods supplied intra group, where third party comparisons are easier,” he said by email Jan. 9.

Controversial Penalty

The DPT sparked controversy at the time of its introduction as the U.K. took individual action amid the OECD’s 15-action project to rewrite tax policy for multinational companies. Last year, however, Australia’s government enforced a measure similar to the U.K.’s DPT, with higher penalties.

In addition to Cooper Companies, London Stock Exchange Group Plc, U.K.-based drinks company Diageo Plc, and U.S.-based WiFi product-maker Netgear Inc. have all faced HMRC DPT probes.

Two months ago, meanwhile, Switzerland-based mining conglomerate Glencore Plc. lost its legal battle to challenge HMRC’s decision-making on a 21.3 million-pound DPT charging notice.

In the case, Glencore sought permission to apply for a U.K. judge to review the lawfulness of HMRC’s process for the charging notice. The Court of Appeal’s Nov. 2 ruling against the company means few other businesses will dare to seek the same legal process, known as a judicial review. Yet Hyde said that companies are now looking at other ways to oppose HMRC over its use of the DPT.

Businesses “are looking at challenges within the framework of the regime because we have found that DPT has been applied by HMRC much more widely than was anticipated,” he told Bloomberg Tax. “You certainly do not need to be a U.S.-owned tech multinational to be caught.”

To contact the reporter on this story: Ben Stupples in London at bstupples@bloombergtax.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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