RWE npower boss fails to convince MPs on the energy select committee that ‘there is nothing amazing’ about capital allowances for major investment
MPs on the Commons energy select committee have criticised RWE npower after it emerged that the company’s corporation tax liability in recent years had been eliminated by tax reliefs for substantial investment in infrastructure. One Labour MP claimed that observers would be ‘shocked’ to hear that the company believed that it deserved not to pay tax. However, it is a well-established principle of UK corporation tax that depreciation charged in the accounts is disallowed for tax purposes but capital allowances are given instead for investment in plant and machinery.
Yesterday’s exchange will add weight to concerns expressed by some tax professionals regarding the quality of public debate about tax avoidance. Many experts recognise that the international tax system is in need of reform, but some argue that MPs have adopted too broad a definition of avoidance.
RWE npower said in a statement posted on its website yesterday: ‘This is in no way tax avoidance, and all of our business is taxable in the UK. We've not paid corporation tax because we've been investing hundreds of millions to keep the UK's lights on.’
Ian Lavery Labour MP for Wansbeck, accused energy companies of making ‘obscene’ profits at a time when ‘millions’ of people are in fuel poverty. ‘It’s been suggested that of the six big energy companies, three are paying significantly less corporation tax than would be expected,’ he said
Lavery asked Paul Massara, chief executive of RWE npower, to say how much corporation tax his company had paid in the years 2009, 2010 and 2011.
Massara replied: ‘We will not have paid corporation tax in those three years. There is a very simple reason why, because effectively we have invested £5bn in the last five years building power plant, creating jobs, creating employment and helping to keep the lights on. If we had not made that investment, we would not have the deductibility that we have been allowed. That is a simple UK accounting rule. There is no mystery to it, there is no desire not to pay tax …
‘The fact is you are allowed depreciation for your investments, and we have been the biggest investor by a mile in the renewable offshore business.’
Massara added: ‘There is nothing amazing about that, and if this country wants to get £110bn of capital invested, you are going to need to allow people that deductibility. It’s no different from any other industry. People should not be surprised that if you make heavy investment you get deductibility.’
Lavery replied: ‘I’m sorry but I’m absolutely amazed that you haven’t paid any … It absolutely is a surprise.’
Lavery told Massara that according to his figures, npower’s pre-tax profits for 2009, 2010 and 2011 were ‘nearer £750m’. Massara replied: ‘I’ve got different numbers. I can come back to you on that.’
John Robertson, Labour MP for Glasgow North West, told Massara that anybody watching the proceedings would be ‘absolutely shocked that you’re willing to stand up and say that we deserve not to pay tax’.
Massara said: ‘An informed debate needs to be had, which says that there is a general accounting rule that if you make a significant investment … you are allowed to depreciate. That is no different from any other industry.’
The Guardian quoted Caroline Flint, the shadow energy secretary, as saying: ‘Many of these companies are investing heavily in new generation, which I welcome, and which will enable them to legitimately claim capital allowances to offset against their tax liabilities. Nonetheless I was surprised and concerned to learn that out of Britain's six energy companies, three have effective tax rates significantly less than would be expected, and one appears to have paid no corporation tax at all.’
RWE npower’s statement continued: ‘Since 2008, RWE has invested around £5bn in the UK, including two new gas fired power stations and wind technologies.
‘Looking at RWE npower specifically, our investment programme since 2008 has amounted to almost £3bn, which means we have seen a large increase in tax relief. This, combined with the losses in our retail business for 2009 and 2010, reduced our taxable profits to the point where we paid almost no corporation tax. We do however pay substantial employment and property taxes.’
RWE npower boss fails to convince MPs on the energy select committee that ‘there is nothing amazing’ about capital allowances for major investment
MPs on the Commons energy select committee have criticised RWE npower after it emerged that the company’s corporation tax liability in recent years had been eliminated by tax reliefs for substantial investment in infrastructure. One Labour MP claimed that observers would be ‘shocked’ to hear that the company believed that it deserved not to pay tax. However, it is a well-established principle of UK corporation tax that depreciation charged in the accounts is disallowed for tax purposes but capital allowances are given instead for investment in plant and machinery.
Yesterday’s exchange will add weight to concerns expressed by some tax professionals regarding the quality of public debate about tax avoidance. Many experts recognise that the international tax system is in need of reform, but some argue that MPs have adopted too broad a definition of avoidance.
RWE npower said in a statement posted on its website yesterday: ‘This is in no way tax avoidance, and all of our business is taxable in the UK. We've not paid corporation tax because we've been investing hundreds of millions to keep the UK's lights on.’
Ian Lavery Labour MP for Wansbeck, accused energy companies of making ‘obscene’ profits at a time when ‘millions’ of people are in fuel poverty. ‘It’s been suggested that of the six big energy companies, three are paying significantly less corporation tax than would be expected,’ he said
Lavery asked Paul Massara, chief executive of RWE npower, to say how much corporation tax his company had paid in the years 2009, 2010 and 2011.
Massara replied: ‘We will not have paid corporation tax in those three years. There is a very simple reason why, because effectively we have invested £5bn in the last five years building power plant, creating jobs, creating employment and helping to keep the lights on. If we had not made that investment, we would not have the deductibility that we have been allowed. That is a simple UK accounting rule. There is no mystery to it, there is no desire not to pay tax …
‘The fact is you are allowed depreciation for your investments, and we have been the biggest investor by a mile in the renewable offshore business.’
Massara added: ‘There is nothing amazing about that, and if this country wants to get £110bn of capital invested, you are going to need to allow people that deductibility. It’s no different from any other industry. People should not be surprised that if you make heavy investment you get deductibility.’
Lavery replied: ‘I’m sorry but I’m absolutely amazed that you haven’t paid any … It absolutely is a surprise.’
Lavery told Massara that according to his figures, npower’s pre-tax profits for 2009, 2010 and 2011 were ‘nearer £750m’. Massara replied: ‘I’ve got different numbers. I can come back to you on that.’
John Robertson, Labour MP for Glasgow North West, told Massara that anybody watching the proceedings would be ‘absolutely shocked that you’re willing to stand up and say that we deserve not to pay tax’.
Massara said: ‘An informed debate needs to be had, which says that there is a general accounting rule that if you make a significant investment … you are allowed to depreciate. That is no different from any other industry.’
The Guardian quoted Caroline Flint, the shadow energy secretary, as saying: ‘Many of these companies are investing heavily in new generation, which I welcome, and which will enable them to legitimately claim capital allowances to offset against their tax liabilities. Nonetheless I was surprised and concerned to learn that out of Britain's six energy companies, three have effective tax rates significantly less than would be expected, and one appears to have paid no corporation tax at all.’
RWE npower’s statement continued: ‘Since 2008, RWE has invested around £5bn in the UK, including two new gas fired power stations and wind technologies.
‘Looking at RWE npower specifically, our investment programme since 2008 has amounted to almost £3bn, which means we have seen a large increase in tax relief. This, combined with the losses in our retail business for 2009 and 2010, reduced our taxable profits to the point where we paid almost no corporation tax. We do however pay substantial employment and property taxes.’
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