Classic FM, Capital and Heart Radio owners pay no UK tax after sending millions offshore

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This is Global, the UK's biggest commercial radio company with stations including Heart, Capital and Classic FM, has not paid any UK corporation tax in the last five years, after sending more than £200 million through tax havens, an investigation by Corporate Watch has found.

 

The company also owns Xfm, Choice, Gold and LBC and manages bands including The Wanted and Lawson through its Global Talent business. Its music publishing division has The Vaccines, Ellie Goulding, Corrine Bailey Rae, LMFAO and The Waterboys on its books.

Global has expanded rapidly since it was started in 2007 by Ashley Tabor, the son of Irish businessman and racehorse owner Michael Tabor. Last year it bought the Smooth and Real radio stations from Guardian Media Group, cementing its position as the UK’s dominant commercial radio operator, having previously taken over GCAP Media and Chrysalis Radio. Its website says it has 19 million listeners a week across its stations.

Thanks to the revenues from its radio and other businesses, Global made an operating profit of £33 million in 2012, on a turnover of £209 million. But Corporate Watch has found that huge interest payments on loans it has taken from its owners through the Channel Islands Stock Exchange have wiped out its taxable profits in the UK.

Global's UK companies are ultimately owned and controlled by the Jersey-based company Global Radio Group Limited. The UK companies' accounts show they have borrowed £233 million from their owners at a massive 15% interest rate, with another £252 million at 10.5% from another company only described as a “connected party”.

In 2012, interest payments of £60 million on these loans helped turn the £33 million profit into a £29 million loss, leaving Global with a UK tax credit of £257,000 for the year. Previous years’ accounts also show either no tax paid or credits received. In total, more than £200 million has left the UK as interest payments to the owners since Global was founded in 2007.

Jersey does not charge companies like Global Radio Group Limited any corporation tax. The Jersey Company Registry shows Global Radio Group Limited is itself 99% owned by a British Virgin Islands-registered company called Global Radio Worldwide Limited. The BVI also has a zero corporation tax rate. The other 1% is owned from London by Ashley Tabor in a personal capacity.

LBC is currently home to deputy prime minister Nick Clegg's weekly phone-in show Call Clegg. The news will also be embarrassing for Labour leader, Ed Miliband, who in 2011 appointed Sir Charles Allen, Global's chairman, to lead a review of the party's structure and finances. A former chief executive of ITV and chairman of EMI, Allen has since become chairman of Labour's Executive Board.

Radio Ga Ga

A statement from Global in response to questions from Corporate Watch said this is all because of the “significant and legitimate investment” in the business: “once the cost of this investment is taken into account, Global has not made a taxable profit”.

But high interest loans through tax havens are not the only way investors can put their money into a company. They could, for example, have invested their money as equity and received dividends based on the company’s performance. But dividends are paid after a company is taxed and so do not reduce its tax bill.

The company said there is nothing unusual about such high interest rates:

“The interest the company pays reflects the large investment in the business, the high-risk nature of the investments, the fact that the private equity style financing ranks behind bank borrowings in terms of security and particularly, commercial borrowing rates at that time.”

But lending rates in the UK over the last ten years peaked in 2007 at 5.5%. Global itself is paying just over 3% for the bank loans it has taken out. Given that Global’s high interest loans come from its owners – who presumably do not want to cripple their own company with huge financing costs – they seem an unusual way to legitimately invest in a business.

And, just so the Tabor family can buy themselves the best thoroughbreds going, the £60 million also leaves the UK tax-free thanks to the loans being issued on the Channel Islands Stock Exchange, and thus benefiting from a regulatory loophole that exempts them from withholding tax.

A legal loophole

Keen Corporate Watch readers will recognise this as the quoted Eurobond ruse, beloved of water and healthcare companies, and many others.

Global’s owners can receive the interest payments tax-free because they have issued the loans as “quoted Eurobonds”. Normally, when a UK company pays interest to a non-UK company, it has to “withhold” 20% of the payments and give it to the UK tax authorities. But if the loans are issued as quoted Eurobonds on a “recognised” stock exchange, such as the Channel Islands’ or the Cayman Islands’, they benefit from an exemption that means no withholding tax is taken off.

The exemption was originally intended to encourage third party investment into UK companies but has increasingly become a way to shift profits to tax havens. HMRC is well aware it is being used in this way and considered closing the loophole in May last year, noting some companies were using it “for the purpose of circumventing the requirement to deduct tax at source rather than being directed at the raising of third party finance.” It estimated the increase in tax revenues from withdrawing the exemption for intra-group lending could be £200 million a year. However, after submissions by the financial industry, corporate lawyers and big corporations were “largely against the changes as they would make it more difficult to raise funds and therefore make the UK less competitive than other jurisdictions”, it decided against closing it.

Further undermining both the coalition and the previous Labour governments’ tough rhetoric on cracking down on businesses not paying tax, is Global's boast to us that HMRC is well aware of what it has been up to and has even approved its scheme:

“Global also proactively made full disclosure of its financing to HMRC, and proactively met with HMRC to formally agree the tax treatment of the interest on its borrowings under part 5, Taxation (International and other Provisions) Act 2010. These meetings resulted in HMRC confirming an agreement in writing with Global on how the interest will be treated for tax purposes.”

Global told us it is “fully compliant with all its obligations in respect of its taxes” and has “contributed over £112m to the Exchequer (in payroll taxes, national insurance contributions and business rates)”. It said it will be “robust in ensuring that the company’s reputation is not tarnished by incorrect suggestions that it does not pay the full taxation it owes under current tax legislation”. But it’s not the legality of its operations under scrutiny. To paraphrase the chair of the Public Accounts Committee, it’s the morality.

Heart Vacancy

The news of Global’s financial shenanigans will be particularly galling for local radio stations shut down as Global’s empire has expanded. Global more than halved the number of its Heart stations in England and Wales in 2010, with the loss of about 200 full- and part-time posts. Fans of stations closed down as part of the restructuring protested against the changes at the time.

OFCOM deregulated the commercial radio market three years ago. The Digital Economy Act, passed in April 2010, allowed operators to reduce the amount of programming made locally and to consolidate costs across stations, and was intended as a response to the increasingly precarious financial situation commercial broadcasters found themselves in. However, Global’s core business is actually quite healthy. It has posted operating profits above £20 million for each of the last three years. It only becomes a loss-making enterprise after the massive interest payments to its owners are taken into account.

Global is further expanding its operations with the £70 million acquisition of Smooth and Real radio from the Guardian Media Group. The deal was agreed last year but is pending approval from the Competition Commission, which may force it to sell some of the stations over fears it may drive up the price of adverts in certain regions including the East Midlands.

Quite what local businesses will make of the news that Global is sending their advertising fees tax-free to Jersey remains to be seen.