Big Blue could find itself in deep water with the UK Inland Revenue after the tax office confirmed today it is investigating IBM for possible tax evasion to the tune of £300 million.
The investigation centres on complaints brought by ex-IBM sales and marketing manager Gerard Churchhouse, who was sacked by IBM in 1995.
He claims that IBM UK hiked its royalty fees to the parent company from eight to 12 per cent of its income to reduce tax paid on income in the UK, at a time when taxes owed in the US were paltry because of poor performance.
The inquiry centres on the period between 1991 and 1996. IBM did not pay taxes on its US operations between 1991 and 1993 because the company posted losses.
Katie de Cozar, IBM spokeswoman, confirmed that "IBM is currently working with the Inland Revenue on an inquiry. This is a normal and routine procedure and IBM is co-operating fully."
"IBM has no comment to make regarding Mr. Churchhouse or his allegations," she added.
The Inland Revenue was equally as cagey. A spokeswoman said: "We can't comment without written authority from the company concerned." However, she said that the tax authority is obliged to investigate, "any complaint like that" with no indication of liability.
Ominously, she warned that "if a lot of tax has been lost, we will recover it."
Mark Lillycrop, director of research at analysts Xephon, said: "It is the way with multi-nationals that they move a lot of money around - they have that flexibility."
He added: "They have teams of tax lawyers who work on getting as close to the regulations as they can without over-stepping the mark and staying within the bounds of what is legal. Sometimes they play it a bit too close and infringe regulations."
Michael Chiswick, head of the IT group at Field Fisher Waterhouse, said, "on the face of it, it doesn't smack of anything illegal. You can't avoid tax but you can evade it."
"It is not an unusual way for multi-nationals to construct their affairs," he added.
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