LONDON (Reuters) - The support that the UK government has promised carmaker Nissan in return for building new models in Britain could prove expensive, but the Japanese carmaker’s complex structure makes it hard to estimate.
Nissan announced on Thursday it would build the new Qashqai and the X-Trail SUV in Sunderland, England, after saying in September it would only commit to new UK investment if it got a promise of compensation should Britain’s move to leave the European Union lead to new taxes on car exports.
Nissan’s main UK arm sells vehicles worth 5.3 billion pounds a year, its accounts show. It says 55 percent of the cars go to Europe, suggesting exports of about 2.9 billion.
In line with World Trade Organization (WTO) rules, the European Union applies tariffs of 10 percent on passenger vehicles imported from outside the bloc.
That could theoretically mean a tariff bill of 290 million pounds for Nissan’s exports from Britain to Europe after Brexit - if the UK fails to secure a free trade deal.
The imposition of customs clearances at borders and the need for upfront payment of value added tax when goods go into the EU could also hit carmakers’ competitiveness.
On the other hand, the UK government has said it is confident of striking a free trade deal with Europe after Brexit, in which case Nissan may face few additional tax costs.
Prime Minister Teresa May’s spokesman said on Thursday Britain did not offer a “compensation package” to Nissan.
However, a source with knowledge of the matter told Reuters the government gave Nissan a written commitment of extra support in the event Brexit reduces its competitiveness.
The carmaker said: “For Nissan, the support and assurances of the UK government enabled the Executive Committee to make the decision that the next generation Qashqai and X-Trail will be produced at Sunderland”.
Nissan boss Carlos Ghosn met Prime Minister Theresa May earlier this month to discuss the impact of any EU tariffs.
Nonetheless, Nissan’s main UK unit does not sell cars to the bloc. All output is sold to Nissan International SA in Switzerland, which Nissan describes as its “European group head office trading company”.
Many multinational groups sell all their products through a centralised unit. This can be done for efficiency, but it can also offer tax benefits if the intra-group transactions channel profits into lower tax jurisdictions.
Switzerland offers tax rates of around 10 percent or less to foreign companies on profits they make on non-Swiss activities.
Nissan declined to comment on whether its structure is intended to shift profits into Switzerland.
Nissan Motor Manufacturing (UK) Ltd’s accounts say its arrangements are fully declared to the UK tax authority.
The UK arm is not especially profitable, making average annual profits of less than 33 million pounds over the past five years on average turnover of 5.0 billion pounds.
Lynne Oats, Professor of Taxation and Accounting at the University of Exeter Business School, said the complex structure would make calculating the actual cost of any government compensation to Nissan complicated.
Richard Murphy, Professor of Practice in International Political Economy at City University London, said if there were new post-Brexit taxes, it would be unclear which set of accounts for Nissan’s UK activities would be used in assessing any compensation claims.
Given the government’s commitment to stamp out corporate tax avoidance, any agreement to pay out on the basis of accounts other than those of the UK unit - including taking account of losses generated in Switzerland - would open the government to criticism, Murphy said.
Reporting by Tom Bergin; Editing by Mark Potter
Our Standards: The Thomson Reuters Trust Principles.