| LONDON, April 25
LONDON, April 25 International pressure to curb
corporate tax avoidance is behind delays to a $35 billion merger
of French advertising group Publicis and U.S. rival Omnicom, and
could even scupper the deal, tax advisers and sources close to
the deal said.
Last July, Paris-based Publicis and New
York-headquartered Omnicom announced plans to create the
world's biggest advertising group. The new company would be
registered in the Netherlands and tax resident in the UK.
However, on Wednesday Omnicom Chief Executive John Wren said
the Dutch and British tax authorities had, "unexpectedly" so far
failed to approve the arrangements, which Omnicom said last year
would save $80 million a year in taxes. Wren added that if the
UK and the Netherlands did not approve the structure, the whole
deal was at risk since "there is no Plan B", though Publicis
said on Thursday it was confident the deal would still proceed.
Securities analysts said they were blindsided by the
problems, and one source close to the deal said that an anti-tax
avoidance strategy being pushed by the Group of 20 most powerful
economies was making it more difficult to get such approvals.
Tax advisers with experience of putting similar deals
together said that historically the Dutch and UK tax authorities
had been flexible in approving such a structure. This is because
it would not mean a loss in tax for either the UK or the
Netherlands, given that the two companies' headquarters are
currently in the U.S. and France.
Indeed, the arrangement would traditionally be welcomed by
the UK and the Netherlands because it would likely bring in some
tax revenue and support jobs.
But a second source close to the deal said the two tax
authorities had not reacted as expected.
"Tax authorities are not working together to find a
solution. They are fighting rather than cooperating and lack of
cooperation between the UK and Dutch authorities is endangering
the deal," the source said, adding there was a real risk the
deal could collapse as a result.
And the other source said the G-20's anti-tax avoidance
strategy, known as the "Base Erosion, Profit Shifting" (BEPS)
programme, which is being managed by the Organisation for
Economic Co-operation and Development(OECD), was having an
impact on the deal.
"The entire current BEPS discussion is getting a lot of
attention from the Dutch Ministry of Finance, and in the UK, "
the source said. "Things now take longer," he added.
PUBLIC, PEER PRESSURE
The Dutch and British tax authorities declined to comment on
the Publicis-Omnicom case, citing rules on taxpayer
But a spokesman for Her Majesty's Revenue and Customs, the
British tax authority, added: "The UK is committed to tackling
aggressive tax planning and harmful tax practices and is
actively engaged in the OECD's work to look at the international
tax rules, which have not kept pace with the changing nature of
Omnicom and Publicis did not return calls seeking further
comment on the hurdles the deal was facing.
Lawyers who have previously worked with companies moving
their domiciles said tax authorities were beginning to take a
less flexible approach when asked to approve tax-reduction
structures. They said that this was a response to public anger
over such moves, and the resulting political impetus for the
authorities to crack down, as well as the proliferation of tax
Ton Smit, a lawyer with Tax Consultants International in
Amsterdam, said "treaty shopping" through which companies chose
to establish only a nominal presence in a country to receive the
tax-reduction benefits of tax treaties were facing a public
"The public is quite negative about the Post Office box
company market," he said.
Peer pressure was also at play, with countries such as the
Netherlands or the UK not wanting to be seen to be helping big
companies avoid taxes in allies such as the United States, said
Dominic Stuttaford, tax partner with Norton Rose Fulbright in
"The UK tax authority is very receptive to inward investment
but they also want to make sure that people are not simply
exploiting the tax regime," he said. "The Dutch tax authority
won't want the U.S. tax authority saying they are not doing
their bit to make sure multinational companies are paying their
fair share of tax," he added.
The UK and Dutch tax authorities declined to comment on
whether they have changed their approach.
The corporate structure planned by Publicis and Omnicom
echoes that used when CNH and Fiat Industrial merged to create
CNH Industrial in 2013.
Italian carmaker Fiat and its U.S.-based affiliate Chrysler
also plan to use a similar structure as part of the full
integration of the two companies, due to be completed this year.
The arrangement gives companies the chance to take advantage
of Britain's unusual absence of a withholding tax on dividends,
Being a UK tax resident is better than Dutch residency for
companies with significant U.S. activities because the U.S.-UK
tax treaty is seen as more beneficial than the U.S.-Netherlands
Meanwhile, a Netherlands domicile can be more helpful as
Dutch corporate rules permit anti-takeover provisions not
allowed in the UK and offer more flexible rules on corporate
governance matters, lawyers said.
Normally a company is assumed to be tax resident in the
country where it is registered but bilateral tax treaties often
allow a company with no activities in the country of
registration but activities in another to shift its tax
residence to the second country.
Yet in the case of the UK-Netherlands tax treaty, this is
not a simple box-ticking exercise. Changes in the treaty in
recent years, mean the tax authorities now have to go through a
"mutual agreement procedure" before a Dutch-registered company
can be deemed to be tax resident in Britain, and not the
Tax advisors said they prefer the traditional box-ticking,
which is also known as a "tie-breaker", as the mutual agreement
can take more than six months to negotiate.
"With a tie-breaker, you have your destiny in your hands,"
said one lawyer who asked not to be named.
(Additional reporting by Leila Abboud in Paris, Nicola Leske in
New York and Anjuli Davies in London; Editing by Martin Howell)