Cereal giant Kellogg's paid no tax on billion-euro European sales routed through Ireland

KELLOGG’S, THE 110-YEAR-OLD cereal-maker behind Corn Flakes and Coco Pops, routed more than €1 billion in sales from Europe and other regions through Ireland last year – but paid zero corporate taxes to the exchequer.

The US company’s Dublin-registered, Luxembourg-owned subsidiary Kellogg Europe Trading Ltd reported total turnover in the year to 2 January of around €1.28 billion – down from nearly €1.32 billion for the 2014 financial year.

Despite the lower turnover, the company managed to deliver a larger operating profit of €57.2 million – up from €38.7 million.

According to the company’s just-released filings, which were audited by accountancy firm PwC, its “principal activity … is the production and marketing of ready-to-eat cereals and related foodstuffs in Europe, Africa and the Middle East”.

Kellogg's mascot Tony the Tiger and actor Alfonso Ribeiro

High-interest loans

However, even though it reported significant operating profits, Kellogg’s Irish subsidiary still reported a net loss for the financial year of €65.7 million.

That figure was arrived at after it recorded ”interest payable and other charges” of €137.5 million thanks to a huge intra-company loan from another Kellogg’s subsidiary.

The company booked a tax credit of €9.8 million for the year, which it will also be able to use to offset future profits.

A note attached to the accounts said that, in spite of the ongoing losses, the “directors consider it appropriate to prepare the financial statements on a going-concern basis as the company is profitable at an operating level”.

The filings showed the company owed more than €1.69 billion for long-term loans from “fellow subsidiaries” at interest rates of between 7.5% and 8.75%. The accounts do not state where the creditor subsidiaries were located.

The use of intra-group loans by multinationals to legally slice their tax bills, in some cases to zero, has been one of the key areas targeted by both the OECD and the EU in fighting tax avoidance.

The average interest rates for larger corporate loans with longer fixed periods across the eurozone currently stand at just under 1.6%.

Integrity and accountability

A spokeswoman for Kellogg’s Europe said the company was “grounded in values of integrity and accountability, and we take our responsibility to pay taxes seriously”.

“We pay all corporate tax according to the laws of the countries in which we make and sell our foods and we contribute to the regions in which we operate beyond paying taxes, including through jobs, capital investments and corporate social responsibility efforts to alleviate hunger and drive sustainability.

“As tax laws and regulations evolve, we will continue to fulfill our obligations.”

Irish staff  

Kellogg Europe Trading’s filings also show that just over 40% of the company’s revenue came from the UK, with the vast majority of the remainder sourced from the rest of Europe.

The company had 215 employees, on average, during the financial year, with the roles fairly evenly split between supply chain, sales and distribution, and administrative roles.

Kellogg’s main trading company for its Irish cereal business, Kellogg Company of Ireland Ltd, reported turnover of €61.8 million and a net profit of €1.285 million for the year to 3 January 2015, according to its most recent accounts.

It also reported taxes of €65,000 owing for the year and an average workforce of 42 staff.

Meanwhile, the firms’ Michigan-headquartered parent Kellogg Company reported global sales of $13.5 billion last year for a net income of $614 million.

It reported paying $159 million in income taxes worldwide – an effective tax rate of just over 20% on its declared pre-tax profits.