Dyson sweeps away profits from the taxman
Up until 2010 the corporate structure behind Dyson, the hand dryer and vacuum cleaner group, was as functional as its products.
Shares in Dyson James Ltd (DJL), the main business, based in Malmesbury in Wiltshire, were owned by inventor and entrepreneur Sir James Dyson, with the founder’s three children each holding minority stakes.
The billionaire industrial designer, who came up with the bagless vacuum cleaner and built a company with a £1bn turnover, has become a figurehead and spokesman for UK engineering and science.
In the late 2000s a rash of businesses moved their headquarter operations abroad. Shire, UBM and WPP had moved to Ireland. Ineos switched to Switzerland. Dyson did not approve.
“We don’t have any plans to do that [move tax domicile],” he said in 2008. “I think it’s wrong to direct your business for tax reasons. Your business should be where you can do it best.”
However, his company went on to use elaborate tax structures after he made those comments.
At the start of 2010, new tiers of holding and finance companies began sprouting into life above DJL.
Shares in DJL were now owned by a new UK holding company: Dyson James Group Ltd (DJG), which in turn became a subsidiary of Clear Cover Ltd, a parent company incorporated in Malta.
Two group financing companies were also established: one in the Isle of Man called Silver Cyclone, one in Luxembourg called Blue Blade.
Leaked details of tax deals with the Luxembourg tax office show these were to be the vehicles for a £300m injection of loans into DJG in the UK. Like all good corporate manoeuvres it was given a muscular-sounding code name: Project Ajax.
In a matter of months, the simple corporate architecture that existed before had been swept aside. Dyson and his children remained the ultimate owners but their immediate interest was now in a company registered to an address on Tingé Point in the Maltese costal town of Sliema, the site of a former British barracks.
Back in Britain, financial transactions that bore little relation to breaking new ground in product design began to take place. Instead of product engineering, this was financial engineering.
In 2010 DJG had to meet new interest costs of £5.37m that were paid to newly-created sister company Blue Blade, filings in Luxembourg show. These costs are thought to have been largely or entirely tax-deductible – meaning they lowered profits at DJG, and thus its tax bill.
Dyson declined to confirm this, saying only that tax matters were commercially sensitive.
Accounts for Blue Blade show the company’s corporation tax for 2010 was just £55,037 — an effective tax rate of just under 1%. Somehow the business had escaped tax at anything close to the then headline rate of over 28% in Luxembourg.
Only in leaked tax papers is an explanation to be found. In a 2009 letter to Marius Kohl, one of Luxembourg’s top taxmen, Dyson’s tax advisers at PwC argued the case for Blue Blade to be charged tax on only a small fraction of its interest income.
The letter makes clear PwC had met with Kohl to discuss the matter a month earlier.
At the heart of the tax advisers’ case was a claim that Blue Blade should pay almost no tax because although it had lent £300m to DJG, it had also borrowed £299m from Isle of Man-based Silver Cyclone.
PwC make no secret of the fact that the loan from the Isle of Man was interest-free. Nevertheless, it suggests, Blue Blade should properly benefit from a tax deduction as if it had been required to pay interest to Silver Cyclone.
“[Blue Blade] will be allowed to deduct a deemed interest on its interest free debt involved in the financial on-lending activity”, PwC wrote. Rather than taxing all of Blue Blade’s lending profits, Luxembourg should only tax a tiny fraction of the sums borrowed.
The nine-page PwC letter was sent to Kohl on 11 November. On the same day, the Luxembourg taxman sent back a two-paragraph reply: “Further to your letter… relating to the transactions that [the Dyson group] would like to conduct, I find the contents of said letter to be in compliance with the current tax legislation and administrative practice.”
With these words, Kohl provided official sanction for the Dyson scheme to go ahead as PwC had described.
The Guardian asked the Dyson group why Blue Blade should qualify for a tax deduction over “deemed interest” costs when, in reality, this company had almost no borrowing costs thanks to the interest-free loan from Silver Cyclone. Dyson did not answer.
In a statement it said: “Advice a number of years ago was that a non-UK holding structure would aid growth further, however, that has not turned out to be the case and the holding structure of Dyson group is now entirely in the UK.”
For reasons unknown, the £300m loan from Blue Blade was repaid in less than a year. But analysis of Dyson filings in the UK, Luxembourg, Malta and Isle of Man show that in 2011 the group rebuilt a near identical structure. This time, however, millions of pounds in interest payments from UK operations went to a Luxembourg company called Copper Blade. And the payments were higher as the Malmesbury holding company had borrowed £550m.
This large loan was partly repaid in 2011 and again in 2012, with all debts and the entire structure unwound last year.
Dyson told the Guardian: “The Dyson family business paid £330m in UK tax over the past three years, clearly not the act of a company avoiding its fair share of tax. Dyson’s success means that over 85% of its technology is sold overseas … At no time did the [group’s former] non-UK structure deliver any significant tax advantage and, of the entities in question all have been dissolved or are in a liquidation process.”