S&P 500’s Cooper Companies Pays $41 Million U.K. ‘Google Tax’

Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.

By Ben Stupples

The Cooper Companies Inc., a member of the U.S. benchmark Standard & Poor’s 500 stock index, has paid its 31 million pound ($41 million) U.K. “Google tax” charge to the British government.

Any business that receives a diverted profits tax (DPT) assessment from the U.K.’s tax authority must pay the disputed amount in question before it can begin the process to recover it.

In line with the U.K.’s DPT laws, Cooper Companies said in a June 8 quarterly filing that it had paid the charge on Jan. 19. “The company continues to cooperate with the U.K. Tax Authorities to resolve this issue,” said the Pleasanton, Calif.-based maker of contact lenses and surgical tools.

The U.K. introduced the DPT in 2015 amid concern that Google parent Alphabet Inc. and other global tech companies were avoiding local corporate taxes by stashing profits offshore. Applying equally to U.K. multinationals, the measure sets a 25 percent levy on profits that the British government deems to have improperly avoided U.K. taxes. The country’s current corporate rate is 19 percent.

First DPT Payment

Cooper Companies is the first U.S. company to disclose publicly the payment of a U.K. DPT charge. Doing so may add scrutiny to the unresolved issue of whether American multinationals can claim a tax credit for the charges, meaning the U.S. Treasury Department would cover the cost of the U.K.’s DPT.

The U.K. government believes that the DPT isn’t covered by its tax treaty with the U.S., London-based barrister Philip Baker QC previously told Bloomberg Tax by email. “However, the U.S. might disagree and decide it is a covered tax, in which case it should be creditable in the U.S.”

The Treasury Department hasn’t responded to requests for comment from Bloomberg Tax on the issue.

Possible Litigation

Previously, Cooper Companies has warned investors about the legal process surrounding the tax.

The process for disputing a U.K. DPT charge “can be lengthy and could involve litigation,” it said in its 2017 annual report, filed Dec. 22. The company will “vigorously” content the bill, it said.

A Cooper Companies spokeswoman didn’t immediately respond to a request for further comment.

U.K.’s DPT Process

Under the U.K. DPT laws, companies must notify Her Majesty’s Revenue and Customs if they have arrangements that may be in scope of the tax. If the U.K.’s tax authority 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, followed by a 12-month review period to challenge the charge.

In its last annual report, Cooper Companies said it received HMRC’s charging notice on 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 lens business Sauflon Pharmaceuticals Ltd. in 2014., it added.

“We believe that the transactions in question were at arm’s length with no intention to divert profit from the United Kingdom and therefore are outside the intended reach of the DPT,” Cooper Companies said in its June 8 filing.

Other Multinationals

Alongside Cooper Companies, one other multinational has publicly disclosed a U.K. DPT charge.

Diageo Plc, the world’s largest distiller, paid a 107 million-pound DPT charge in August 2017. The London-based company is now nearing the end of its 12-month review period with HMRC.

“The payment of this amount is not a reflection of Diageo’s view on the merits of the case,” the London-based maker of alcoholic beverages said in its 2017 half-year results, published July 27.

Growing Revenue Source

For HMRC, DPT charges are a growing revenue source. In the financial year to March 2018, the U.K.’s tax authority collected 221 million pounds from DPT charges, a 60 percent rise from the previous 12 months.

The DPT “is an important measure for HMRC and is designed to encourage behavioural change in businesses,” HMRC said in its latest annual report. “Last year diverted profits project teams developed new innovative ways of identifying, risk assessing and investigating profit.”

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

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.

Request International Tax