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Walsh reiterates tax threat

Diageo chief executive Paul Walsh yesterday reignited his battle against punitive business taxes with a warning to the coalition government that it risks forcing many businesses, Diageo included, to re-domicile if new taxes are imposed.

Walsh threatened to move the company overseas last year in the face of tax rises proposed by the Labour regime, but has withdrawn the threat with the new coalition in power. That has not stopped him from standing his ground over the issue, however, and he has accused governments around the world of naivety if they believe companies must stay where they are.

The digital age has brought about the capability to operate from anywhere in the world, and Walsh is indeed correct and well within his rights to suggest that Diageo would relocate to a country with a more favourable business environment should tax increases affect the performance of his company. After all, his overriding duty as chief executive of a PLC is to deliver maximum return for its shareholders.

Speaking at the opening of a new distillery in Scotland, Walsh said: “It doesn’t matter where we are based. Governments forget that if they think they can be cute in introducing new tax regimes and take companies for granted they will force us to look wider.

“We will work with whoever is in power but when governments suggest things we do not like we will be very vocal. The last thing I want to do is re-domicile this company, but in the face of substantial increases in tax I would have to look at it.”

One could ask quite what prompted such an outburst. After all, there are no taxation threats currently on the table. However, he has not forgotten the Labour regime’s attempts to tax overseas profits and is also acutely aware of the current government’s immediate need to reduce the deficit.

He is also well aware of the company’s worth to the UK economy. In the last year alone, Walsh claims, Diageo paid no less than £1.6 billion to the UK Exchequer, despite the fact it generates the majority of its profits through overseas sales of Scotch whisky. Indeed, he said the company now generates £99 every second in export revenue.

After 10 years at the helm, Walsh is widely expected to be gearing the company up for on last major acquisition before he steps aside and he has made no secret of his desire to snap up the remaining shares in Moët Hennessy – in which Diageo already owns a 34% stake – should the Arnault family decide to cash in on their stake. However, while there is no doubt Diageo has sufficient cash to make the acquisition, the company has no immediate targets. If they did, you can bet that Walsh would not be quiet on the issue.

Indeed, his aims for the next 12 months seem to be consolidation after a troubling couple of years. “I am feeling better than I felt a year or 18 months ago,” he said. “The next 12 months will continue to be challenging. I don’t think we will fall off a cliff or into double dip (recession)."

Finance on Friday, 24.09.2010

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