Cadbury is tax-free even with a whooping £96.5M profit

Mondelez, the American owner of Cadbury, is under the spotlight as it failed to pay corporate taxes in the U.K. despite earning £96.5 million.

The Guardian reported that Mondelez removed Cadbury's bills by using interest payments for its unsecured debt. This debt is listed as a bond in the stock exchange of Channel Islands. The interest for the loan can be used as a loan to offset gains in other aspects of the company.

Based on the tax arrangement, by using the interest payments to offset other gains, Mondelez can avoid paying UK corporate tax for its Cadbury UK subsidiary despite earning £96.5 million in 2014 and £83.6 million in 2013.

"Multinationals like this are deliberately exporting their profits with artificial company structures to avoid tax," said  Commons all-party group on responsible tax head Margaret Hodge in a report by London Loves Business. "The founders of Cadbury, who set it up as an ethical company, will be turning in their graves."

According to The Week, Mondelez paid £1.4 billion worth of interest on a £8.2 billion loan instrument in the Channel Islands' stock exchange. That amount was initially used to pay for the original buyout. Based on the contentious tax break rule, payments made on European bonds are tax-deductible. This law was created to attract more foreign business to the region. 

This is one of the loopholes in the system that allows corporations to avoid paying taxes. The Treasury investigated this issue in 2012, but did not take any action. The Labour pledged to remove this tax break as the 2015 election is closing in.

"We comply with all applicable tax legislation in the UK, and on a global basis we pay hundreds of millions of dollars in corporate income tax annually. Since 2010 we are proud to have invested over £200m into both UK-based manufacturing and R&D supporting our 4,500 employees in the UK," said the spokesperson.

According to a Mondelez spokesperson, their company, just like any other international firm, pays corporate taxes based on the tax laws of the country where they run their business.