Page last updated at 12:55 GMT, Thursday, 11 February 2010

Diageo hits out at UK tax regime

Pint of Guinness
Diageo says sales have picked up in recent months

The head of Diageo, the world's biggest spirits maker, has criticised the UK tax regime, and says if it worsens his company will consider moving abroad.

Chief executive Paul Walsh told the BBC World Service that it was already "very difficult" to employ staff in the UK where they could face a 50% tax rate.

He also said corporation tax needed to be cut and called for a more simplified and unwavering tax regime.

However, the Treasury said the UK was an attractive place to do business.

"At 28% the UK's corporation tax rate is now at its lowest-ever level," a Treasury spokesman said.

"The UK continues to have the lowest corporation tax rate of the major G7 economies."

A number of companies have already relocated their tax bases away from the UK including advertising giant WPP, publishing group Informa and temporary office supplier Regus.

Last August, pharmaceutical firm Reckitt Benckiser also said it was considering shifting its tax headquarters out of the UK.

Mr Walsh said Diageo, which employs 6,000 people at its London headquarters, said it still enjoyed being based in London, but warned it might be forced to relocate.

"But if the tax regime becomes so egregious, either for corporates or individuals we would have no option but to look at alternatives," he said.

"The UK has become progressively a less attractive location to base oneself in," he added.

He refused to comment on speculation that the company - which owns brands such as Johnnie Walker whisky, Smirnoff vodka and Guinness stout - had been offered incentives by the Swiss government to locate there.

'Challenging' time

Mr Walsh was speaking after Diageo reported a dip in its half-year profits.

Pre-tax profit for the six months to December 2009 fell slightly to £1.39bn from £1.41bn a year ago.

The drinks firm said it had been a "challenging" six months as the consumer environment remained weak, but added it was in the early stages of recovery.

Mr Walsh said the first quarter of the company's financial year had been tough as expected, with sales down 6%, but sales in the second quarter had picked up by 2%.

"If you look at the second quarter it's clear that the US and Europe remain pretty slow but markets such as Asia, Latin America and Africa are quite buoyant," he said.

In July, Diageo announced plans to close its Johnnie Walker bottling plant in Kilmarnock and its Port Dundas grain distillery in Glasgow.

Despite strong protests, the company has confirmed that the closures will go ahead, with about 900 jobs lost as a result.

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