UK
16/09/2013 07:38 BST | Updated 17/09/2013 14:34 BST

Tory Donor Lycamobile Under Fire From MPs For Not Paying Corporation Tax Since 2007

Lycamobile

Telecoms giant Lycamobile has come under widespread attack by MPs after admitting that it has not paid corporation tax in the UK since 2007 and will not do so for at least a year.

Speaking to the Huffington Post UK, Liberal Democrat MP Ian Swales, member of the Public Accounts Committee, said: "I believe Lycamobile is one of the many companies who export the profits from their UK activities to tax havens via interest payments and so forth."

"I feel that a company that makes no UK profit should not be donating to a UK political party."

Swales' comments come as the Public Accounts Committee is reported to be planning an investigation into tax breaks used by mobile phone networks.

Michael Landau, Lycamobile's chief financial officer, said the firm, which turns over more than £120m in the UK, did not pay corporation tax in the UK because it ploughs its profits back into the group in order to grow the business.

"Lycamobile is a very fast growing company as an affiliated group of companies and all the profits that we make get reinvested back into the group to grow the business further on," he told the Huffington Post UK.

"Every cent that this business earns goes back into growing this business into making it a more valuable proposition. That has been the way this business has been run since way before I joined and it was set up to run that way and is still growing."

Lycamobile's tax arrangements, although perfectly legal, have drawn criticism from politicians. Labour MP and Public Administration committee member Paul Flynn told the Huffington Post UK: "This sounds outrageous. The situation cries out for investigation and exposure."

Landau told HuffPostUK that Lycamobile could start paying corporation tax when it is become sufficiently "mature" in the UK in one to two years.

"We're still recovering from the heavy investment which took place 3 years ago which only now we're starting to come out of by utilizing our tax losses.

"There will be a time in the future when the business is mature. At the moment certain companies are coming into profitability as they mature, and the expectation as that starts to happen is that those particular companies' legal entities will start to pay tax. Lycamobile UK is an example of that and the expectation is that it'll start to pay tax pretty soon.

"The expectation is that the company will have used up all its tax losses within the next 12 to 24 months and therefore in that period the company will start paying tax."

CEO Milind Kangle refused to answer questions about tax, saying: "I'm not a tax expert".

The telecoms firm's insistence that it doesn't pay corporation tax because of its lack of profit has drawn condemnation from MPs as the firm has been a firm backer of the Conservatives, donating nearly half a million pounds (£426292) since 2011.

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Lycamobile donations to the Tories, according to the Electoral Commission

The backing is understood to have included the use of the firm's offices for telephone canvassing by London Mayor Boris Johnson's re-election campaign in 2011.

Labour MP John Mann, member of the Treasury Select Committee, told the Huffington Post UK that Lycamobile's arrangements were a "slap on the face of tax-paying households and businesses in the UK".

Asked if Lycamobile engaged in transfer pricing, a practise by which divisions of a company deal with each other in supplies and money, Landau said: 'We employ blue chip auditors globally to ensure that every trading relationship between all the different companies are all done at arms length and all stack up and there's no unfair, or illegal or any kind of profit manipulation that does not get any kind of sign off from senior partners in London and second partners as well."

Asked if that meant yes or no, Landau said: "I'm not saying we do transfer pricing or not, I'm saying what we do is fully signed off and fully approved by the world's best consultants. I'm very comfortable with that position."

"I need to be reassured and I reassure the board that everywhere we operate the relationship between the companies is fully arms-length and documented. I'm fully comfortable with that position."

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