Public Accounts CommitteeSupplementary written evidence from Atos

ATOS—CORPORATION TAX

1. General

During the Public Accounts Committee meeting on 20 November 2013, Ursula Morgenstern was asked for a note around the reasons why Atos’ UK companies were not required to pay UK corporation tax for the year ended 31 December 2012. This note explains the primary reasons why this was the case.

Atos complies with both the spirit and letter of the tax law. For 2012, the Atos UK companies recorded a profit before tax (PBT) of around £46 million. However due to a number of timing differences between the calculation of accounting profit and the calculation of taxable profit (on which corporation tax is paid), the taxable profits were reduced to nil.

The three primary timing differences were as follows, and are further explained below:

Pension contributions into defined benefit pension schemes.

Capital allowances claimed on the purchase of IT equipment.

Relief for tax losses brought forward from prior periods.

2. Pension Contributions

Atos UK has a number of defined benefit pension schemes. Over 70% of these schemes relate to employees that have been “TUPE’d” to Atos UK as part of taking on public sector contracts. As at 31 December 2012, these schemes were in a net deficit position of around £125 million, which Atos is responsible for addressing through making excess pension contribution payments.

Under UK tax law, corporation tax relief is given for pension contributions actually paid into pension schemes as opposed to the profit and loss (P&L) expense. In the long term the pension contributions paid will equate to the P&L expense, however in the meantime there will be timing differences between these amounts.

During the year ended 31 December 2012 the P&L expense in relation to the defined benefit pension schemes amounted to around £22 million, however the contributions actually paid amounted to £42 million. This resulted in the company being entitled to an additional £20 million tax deduction in addition to its P&L result for 2012.

Further details of the defined benefit pension schemes are disclosed in the published 2012 financial statements of Atos IT Services UK Limited, which can be obtained from Companies House.

3. Capital Allowances

Under UK tax law, tax relief is available for the purchase “plant and machinery” that is used as part of a trade in the form of capital allowances. Relief is available at 18% of the cost on a reducing balance basis. If the relief is not able to be utilised in any year (eg if there are not sufficient taxable profits) then the balance is carried forward (with relief still limited to 18% of the carried forward balance). On the other hand, no tax deduction is allowed for the depreciation charged to the P&L in relation to the equipment purchased. In any one tax year, the difference between capital allowances claimed and depreciation is a timing difference between the PBT and taxable profits.

Atos UK has been in a position for a number of years where the profits have not been high enough for the group to claim its full entitlement to capital allowances, so these have been carried forward as explained above. As such, by the start of 2012, Atos UK had nearly £400 million of capital allowance “pools” carried forward, on which tax relief of 18% was available. This represents the unclaimed cost of investment in plant and machinery by Atos UK.

For 2012, capital allowances of around £72 million were available, however only half of this entitlement will be required as there are insufficient taxable profits to require a full claim.

4. Tax Losses

Under UK tax law, if taxable losses are incurred, these can be carried forward and off-set against future taxable profits arising from the same trade.

During 2011, the Atos group purchased the IT services division of Siemens; Siemens IT Solutions & Services Limited (now Atos IT Solutions & Services Limited). Following acquisition, a number of adjustments were necessary to the contracts accounted for by Siemens in order to align the accounting policies with the Atos group. These adjustments resulted in losses being recognised following the acquisition, which meant tax losses arose. The sole driver for these adjustments was alignment of accounting policies.

These tax losses are available to be carried forward and set against any future profits arising from the trade purchased from Siemens. There were such profits in 2012, so the brought forward tax losses have been utilised to this extent. This is therefore another timing difference which resulted in there being no taxable profits during 2012.

29 November 2013

Prepared 13th March 2014