The Luxembourg parent of Dublin-based Kellogg Europe Trading Ltd paid just €5,000 in tax on profits of €39.5 million in 2013, according to accounts filed in the tiny European Union member state.
Kellogg Lux I Sarl is one of six subsidiaries the giant breakfast cereal group has in Luxembourg. The company had no employees during 2013 but had“financial fixed assets” of €560 million. Income received from these assets totalled €40 million.
In 2012 the Luxembourg company paid €2,000 in tax on profits of €151 million.
The accounts of the Dublin company show that although it had a turnover of €1.4 billion in 2013 it produced an after-tax loss. The company paid out €148 million in interest on loans from group undertakings. The accounts do not identify the companies to which this money was paid.
However, the accounts say that the money it owes to group undertakings includes €1.12 billion on which the Dublin company is paying interest of 7.5 per cent, and €525 million on which a rate of 8.75 per cent is being paid.
Hybrid financial instruments
The Luxleaks controversy last year showed how many multinationals were using so-called hybrid financial instruments that allow companies reduce their tax bills using Luxembourg entities.
The structures included companies in Ireland making payments to their Luxembourg parent that were treated as tax- deductible interest payments in Ireland, but as tax-free dividend income in Luxembourg.
The use of such hybrid instruments in this way is one of the issues being examined by the Organisation for Economic Co-operation and Development as part of its so-called base erosion and profit shifting (Beps) project, which the G20 initiated to examine ways of resisting aggressive tax planning by multinationals.
Global tax system changes
In its 2014 annual report Kellog warned that changes to the global tax system could have a material impact on the group’s tax costs.
On Monday the company referred to the Beps project and said it was obliged to note to shareholders that it might impact on the business.
Kellogg Europe Trading, in its 2013 accounts, says the loss it made that year “is created by interest incurred on loans from a fellow group undertaking”. This type of structure, which “shifts” profits from one jurisdiction to another, can be used to reduce a company’s overall tax bill.
The accounts say the company produces and markets ready-to-eat cereals in Europe, Africa and the Middle East. The accounts show that turnover of €612,484 was in the UK, €774,823 was in the rest of Europe and €6.8 million in the rest of the world.
The company had an average of 219 employees during the year, at a cost of €39.3 million.
The cereal producer, which is behind such brands as Coco Pops, Rice Krispies and Corn Flakes, is listed on the New York Stock Exchange.
It is thought to be the first major multinational to have warned its shareholders that Beps could have a material impact on its profits.
