A long-running dispute between HM Revenue & Customs and commodities giant Glencore over a \u00a31.5bn tax bill may be decided in secret by a panel of foreign arbitrators, after changes to UK law and trade agreements.<\/p>\n
For 15 years British officials have been trying \u2013 and largely failing \u2013 to tax profits shifted from Glencore\u2019s UK-based trading arm to a holding company in the Swiss canton of Zug, findings by TaxWatch<\/a> shared exclusively with The Observer show.<\/p>\n In that period, four-fifths of the company\u2019s profits were transferred abroad in return for \u201cnon-routine services\u201d, which HMRC has claimed should be valued at \u201czero\u201d.<\/p>\n This has dramatically reduced the company\u2019s UK tax liability: since 2009, it has booked nearly $1tn of UK revenue and declared a pre-tax profit of less than 0.05% and tax liabilities of just \u00a357m. There is no suggestion that Glencore has engaged in unlawful or fraudulent behaviour and the company says the relationship between its UK and Swiss subsidiaries is analogous to fees paid by a hedge fund manager to a capital provider.<\/p>\n From this month, Glencore\u2019s diverted profits tax (DPT) case \u2013 likely the largest to date \u2013 will qualify for a closed-door arbitration process outside the UK courts that can result in a \u201cbaseball\u201d (ie all or nothing) decision. This raises the risk that HMRC will lose the entirety of a claim it has pursued since 2011, with knock-on effects for the public purse.<\/p>\n At the same time Glencore\u2019s trading unit is poised to profit handsomely as a result of oil price volatility<\/a> caused by the war in Iran. In early April the company was reported to have chartered one of the first tankers waiting to load Iraqi crude since the conflict started. If the Strait of Hormuz is reopened, that oil will likely be sold to Asian markets at high prices.<\/p>\n Disruptions to global supply chains and the raising of trade barriers have ushered in what some are calling a \u201cgolden age of arbitrage<\/a>\u201d, in which traders who exploit disparities in prices, and match buyers to sellers, thrive. JP Morgan\u2019s trading arm just reported its largest profit yet<\/a>. BP\u2019s profits more than doubled<\/a> in Q1 for the same reason.<\/p>\n Last Thursday, Glencore\u2019s results showed its marketing segment\u2019s earnings performance would \u201ccomfortably exceed\u201d long-term guidance of $3.5bn<\/a> for this year, compared with $2.9bn in 2025.<\/p>\n Last year the tax at stake in Glencore\u2019s case rose by \u00a3620m. The total now stands at more than \u00a31.5bn. Whether an expected windfall this year raises substantial revenue for HMRC now depends on the outcome of the closed-doors procedure the UK tax authority has initiated with its counterpart in Switzerland. Glencore has identified this as a “receivable” in company accounts, meaning it expects to win the case and be repaid for upfront diverted profits tax sent to HMRC.<\/p>\n \u201cHMRC insists that the era of aggressive tax avoidance by multinationals is over. This justifies the \u2018co-operative compliance\u2019 approach they take to very large businesses, unlike with ordinary taxpayers,\u201d says Mike Lewis, director at TaxWatch. \u201cLitigation is very rare, and available powers and penalties sit unused on the statute book. Though some large companies have undoubtedly changed their tax behaviour, this case raises the question of whether HMRC has \u2018defanged\u2019 itself when dealing with multinationals which do not co-operate.\u201d<\/p>\n NewslettersChoose the newsletters you want to receive<\/p>\n Clear, calm analysis on the stories driving the day\u2019s news.<\/p>\n The very best of our journalism, reviews and ideas \u2013 curated each day.<\/p>\n Puzzles people and the stories behind them – trends, histories, insights and brain teasers all in one place.<\/p>\n