Wonga in tax avoidance strategy, claims Corporate Watch

PAYDAY LOAN COMPANY WONGA has moved key components of its business to Switzerland in order to avoid tax, campaign group Corporate Watch has claimed.

Wonga, regularly criticised for its high interest rates – which can be more than 4,000% APR – has trademarked software and brand names with a Swiss subsidiary, which can charge Wonga’s UK companies for their use, Corporate Watch said following an investigation. Wonga’s overall tax bill last year was £22m.

Corporate Watch adds the company has also registered a new software patent in Ireland. Both Ireland and Switzerland charge lower corporation tax rates than the UK.

Wonga has grown rapidly since its founding in 2006, and in 2012 it posted a profit of £85m. Although it describes itself as a UK lender, its loan agreement shows that while money is borrowed from the UK company, there’s another company – WDFC SA, a Geneva-based part of the Wonga group – listed as a “credit intermediary”.

In July last year, WDFC SA acquired the trademark to the Wonga brand name and computer software used to assess customers’ loan applications, according to records from the UK’s Intellectual Property Office and the EU’s trademark office.

The company had previously been granted a consumer credit licence by the UK’s Office of Fair Trading in May 2012, enabling it to act in “credit brokerage”, “debt administration” and “debt collecting” and giving it the authority to handle people’s data.

WDFC SA’s articles of association lodged with the Geneva company registry describe its main purpose as approving the loans made by Wonga’s subsidiaries outside Switzerland. The records also show chief operating officer Niall Wass and two other executives are now based in Geneva.

As a result, when someone applies to Wonga for a loan, their application goes through approval via the Swiss company’s software, which charges Wonga for its use and the right to use its brand. In 2012, a net £35m was paid to the Swiss company, according to the accounts of Wonga’s UK companies filed at Companies House. Any profits made by the Swiss entity will only be taxed there.

Richard Murphy from Tax Research UK told Corporate Watch: “The transfer of key business processes – especially those that are technology-based and that can be protected by patents and copyrights – is a classic way in which companies try to move their profits between countries.

“Tackling it is a key focus of the current international efforts to crack down on tax avoidance. Of course it is legal but it provides real opportunities for companies to “profit shift” to low tax countries. It’s very hard to explain why Wonga would shift a key business process of this sort to Switzerland if that was not its aim.”

A spokeswoman for Wonga said: “Wonga pays and will continue to pay full UK corporation tax on its UK profits as well as taxes overseas in other countries in which we operate.

“In 2012, UK corporation tax was £21.8m on profits of £84.4m. We’re proudly headquartered in the UK and, as a global digital finance business, we have offices around the world, including Switzerland, Canada and South Africa. As well as paying full corporation and other relevant UK taxes, we hired over 100 staff here in 2012, and are on course to hire another 160 this year.”

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