Formula 1 made a profit of £305 million in last season and the sport paid the UK government just £1 million in tax according to a prospectus for the imminent stock floatation. UK’s leading news ‘The Independent’ reported.
The news source described that Formula 1, which is run by billionaire Bernie Ecclestone, made a net contribution of £945,663 ($1,468,000) in corporation tax in 2011 on revenues of £980m ($1.5bn) – even though the majority of its commercial operations are based in the UK.
The editorial explains that the Formula One Group is made up of 30 companies and tax deductable interest on intra-group loans between those companies allows the group as whole to minimise its tax bill.
“We have an efficient tax position,” read an extract from the prospectus. “We expect our aggregate cash tax payments to remain broadly consistent with prior years.”
“The group’s tax charge is materially dependent on the amount of UK tax relief available to it for interest expense on certain intra-group loans. The amount of such relief is limited to the ‘arm’s length’ amount of interest, which can be a subjective matter. In order to obtain greater certainty regarding our affairs we have since 2008 operated pursuant to a formal advance thin capitalisation agreement with the UK’s tax authority, HM Revenue & Customs, which… applies until 31 December 2017.”
The Independent added that, Prime Minister David Cameron said he was “delighted” with the development. “Taxpayers, governments and businesses all suffer when some companies manipulate the tax system to avoid paying their fair share of taxes,” he added.
Earlier this year it emerged that the US companies Starbucks, Google and Amazon paid little tax in the UK despite having big operations here.
Google was fiercely criticised by MPs for routing £3.2bn of UK sales through Dublin, which led to it paying little tax. Starbucks had UK sales of £413.4m last year and was questioned over transferring royalty payments to a Dutch sister company. Following criticism it agreed to pay £10m tax this year.
The companies pointed out that these tax avoidance schemes are legal and they have a duty to their shareholders to minimise their tax bills. F1 is certainly no different.