Union claims KKR-owned Boots is 'fleecing Britain’

Unite has called for taxation reform for private equity-backed business, as well as an investigation into KKR-backed Alliance Boots, which it claims has avoided at least £1.12bn in tax.

One of Britain’s biggest unions has launched an attack on Kohlberg Kravis Roberts-backed Alliance Boots and the wider private equity industry for evading tax.

In a report, Unite the union claims Alliance Boots has avoided £1.12 billion in tax. It has called for an investigation into the pharmacy group’s tax practices, on the grounds that “Boots has abused the trust of the British public”.

Unite’s general secretary Len McCluskey, accused Boots of “fleecing” Britiain. “Boots has deliberately woven a web to support its tax avoidance habit, the scale of which is so big it could have paid for two years’ worth of prescription charges for everyone in England,” he said in a statement.

KKR declined to comment.

Alliance Boots draws an estimated 40 percent of its UK revenues — £4 billion – from prescriptions and related services, which is mainly paid for by the UK’s taxpayer-funded National Health Service (NHS), according to Unite.

The company went into “massive debt” to fund its 2007 buyout and is “likely to have apportioned this liability to reduce its corporation tax bill by approximately 95 percent over a six year period”, according to the report, which has been drawn up by Unite, anti-poverty charity War on Want and the Change to Win federation of US trade unions.

KKR led the buyout in 2007, together with the company’s executive chairman Stefano Pessina, who – Unite was quickly to point out – “lives in tax-free Monaco”.

KKR initially invested $2.45 billion of equity in Alliance Boots. That included around $1.4 billion from KKR’s 2006 fund, and $750 million from its European Fund II. An additional $300 million was provided from KKR’s balance sheet.

“Several Pessina and KKR-related entities with stakes in Alliance Boots operate in other tax havens, such as Luxembourg and the Cayman Islands”, according to Unite. It claims Alliance Boots, whose holding company is based in Gibraltar, relocated to Zug, “even though the company generates no revenues there”.

KKR agreed to sell a 45 percent stake in Alliance Boots to Walgreens in June in a $6.7 billion deal, as part of which KKR received $1.8 billion in cash.

Unite called for the British government to close “tax avoidance loopholes”. “Ministers have allowed corporations such as Boots and its private equity owners to abuse the UK’s tax system. It is time to make proper rules to make companies like Boots pay their fair share,” John Hilary, executive director at War on Want, said in the statement.

In a statement, Alliance Boots called it “extraordinary and disappointing” that not at any stage Unite contacted them during the preparation of its report.

“Alliance Boots has its parent company registered office in Bern, Switzerland, where we have had a significant business presence for many years through Galenica. Over the last year we have expanded our presence in Bern through the establishment of the Group’s joint venture with Walgreens. We pay the same amount of tax in the UK as we would have paid if we were in the UK,” Alliance Boots said.

“In recent years, we have invested over £2.1 billion to grow our businesses, including £1.3 billion of capital expenditure, of which around £1 billion was spent in the UK. At the same time, we have contributed over £1 billion to our pension funds (on which we receive tax relief), to ensure that we look after existing and future retirees” it added.

The business also pointed out it has “significantly reduced net borrowings” and has continually invested across its businesses. Since the privatization of Alliance Boots, no dividends to shareholders have ever been paid, it added.

The BVCA’s director general Tim Hames called Unite’s attack on Alliance Boots “an almost psychopathic hostility to an outstanding success story”. ”Why put the boot in to Boots when it is doing so much for Britain? Under private equity ownership, Boots has added stores and jobs thanks to significant investment,” he said in a statement.

“Despite contentions in the report there is no special tax regime for private equity – our portfolio companies are simply benefiting, as all businesses are, from the increased competitiveness of our corporate tax regime”, Hames added.

”Over the last five years private equity has invested over £33.5bn into more than 4,500 UK companies to help them expand, innovate, create jobs and return capital to our pension fund investors. The tax deductibility of debt interest encourages this investment, as well as lowering the cost of capital for our portfolio companies. It is not about avoidance, it is about growth – as the case of Alliance Boots well demonstrates.”

This is not the first time that UK trade unions have been vocal in their opposition to private equity, with perhaps the most notorious example being the GMB's targeting of Permira during its ownership of the AA.