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BRITISH tax officials are still trying to fine one of the Tories’ £8.2 million donors for “failure or obstruction” and not paying enough tax, according to company accounts released in March.
The Lycamobile group of companies, which has donated over £2m to the Tories, has also increased the money it put aside for unpaid tax, on top of the fine, to €10.6m, or about £9.2m.
Mobile phone firm Lycamobile has given the Tories £2.1m since 2011. Lycamobile owner Allirajah Subaskaran regularly went to dinners for donors with Tory ministers: in 2016 he dined with David Cameron, George Osborne, Philip Hammond, Theresa May, Jeremy Hunt and Sajid Javid.
Lycamobile sells cheap mobile phone plans, particularly for people who want to make international calls — it sells a lot of its plans to migrants who want to “phone home.” The firm doesn’t own phone masts and networks.
Instead it buys “bundles” of calls on existing networks and sells them. It is a big business. The accounts show the Lycamobile group sold £557m of phone calls, mostly in Britain and the rest of Europe, but also in Australia, the US and beyond.
I first raised questions over Lycamobile’s tax affairs in June 2012 (in the Guardian), when I noticed the huge Tory-donor firm paid no corporation tax.
The Tories continued taking donations from the company until July 2016: in that year they accepted over half a million pounds from Lycamobile. Since then, as more concerns have grown over the firm’s tax affairs, the Tories have not taken any more donations from the firm.
The latest accounts show that HM Revenue and Customs (HMRC) is pressing the company with a fine and further investigations. Most of this appears to involve an offshore structure I revealed in 2013, although the firm and HMRC have previously declined to discuss the details.
Lycamobile’s network includes a firm in the low-tax offshore Portuguese island of Madeira. Lycamobile UK buys multimillion-pound bundles of phone calls from its Madeira company, which has the effect of transferring company income to the low-tax jurisdiction.
Lycamobile is now in multiple disputes with HMRC, many of which appear related to the Madeira money.
HMRC’s continuing attempt to fine Lycamobile £8.2m is revealed in the latest accounts of a firm called WWW Holding Company, published at the end of March. This oddly named firm is actually the top of the Lycamobile group owned by Subaskaran.
The accounts say the fine relates to the “Controlled Foreign Company” (CFC) rules: these rules mean “UK Resident companies are subject to a charge for tax on undistributed income of low tax controlled foreign companies” if “certain conditions apply.”
Roughly speaking, money that is stowed offshore in a company “controlled” from Britain becomes liable for British tax. HMRC first applied the penalty for unpaid tax relating to offshore money in 2016. Lycamobile disputes HMRC’s claim, and the dispute is ongoing.
The accounts say that HMRC is trying to fine the company “under paragraph 50 of Schedule 36” of the Finance Act 2008. Paragraph 50 is a law saying HMRC can impose penalties on companies for “failure or obstruction” of the taxman.
This can include someone who “deliberately obstructs an officer” or fails to answer HMRC questions. It includes a person “who conceals, destroys or otherwise disposes of, or arranges for the concealment, destruction or disposal of, a document.”
The accounts say that the £8.2m fine is “equal to 100 per cent of the HMRC’s estimate of the tax” which the taxman thinks the firm owes “for the financial years 2012 and 2013 combined.” If HMRC is right, the firm may owe even more for 2014, 2015, 2016 and 2017.
The accounts say Subaskaran and his fellow directors “dispute the penalty notice.” However, while they don’t think they deserve a penalty, they are putting money aside for possible unpaid tax. They have made a “provision” in case the “Controlled Foreign Company” rules do mean they have unpaid tax: in the latest accounts they have increased this “provision” from £8.9m to £10.5m: the firm says the final settlement could be a different amount, but it clearly thinks it needs a big kitty in case it has not paid enough tax.
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