Tax strategy of Larry Goodman’s beef empire under spotlight

Even at the age of 85, Larry Goodman remains firmly in control of the beef empire that spans Ireland, Britain and large swathes of continental Europe.

With annual sales of €4 billion in his ABP beef-processing group and significant property and hospital interests, he is one of Ireland’s wealthiest and most powerful businessmen. Having left school early to go into the family meat business, he shows no sign of any slowdown in his ninth decade.

The most recent public records show he is a director in no fewer than 111 separate companies in Ireland, Britain and Jersey in the Channel Islands, a jurisdiction best known for its favourable tax regime.

ABP is the group that emerged from the embers of Goodman’s first empire when a disastrous foray into Saddam Hussein’s Iraq led to the loss of his company in the early 1990s. Although the 1994 beef tribunal report made damaging findings about his business, it did not find it was proven Goodman knew about them. By the end of that tumultuous decade he had regained full control of the business.

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Relentless expansion followed from ABP’s base in Ardee, Co Louth, although the overall profit and the tax it pays has long been hidden behind a thick veil of corporate secrecy. The complexity of financial structures in the group is well known, involving hundreds of legal entities over the years in Ireland, the United Kingdom, the Netherlands, Luxembourg, Liechtenstein, Jersey and an assortment of other locations. Many of the relevant Irish and UK vehicles have unlimited liability, so they are not required to open their accounts to public scrutiny.

Any details that spilled into the open in the past provided only a partial glimpse into the inner workings of an organisation with big profits, vast assets and a devotion to tax efficiency. Goodman went on record seven years ago to say the effective tax rate for the group in the year to March 2014 was higher than the Irish 12.5 per cent corporation tax rate. But the methods his group uses to keep taxation down have rarely been clear.

Now details have emerged for the first time about an obscure company in the Netherlands that is part of the web of European companies that manages ABP’s affairs. The affairs of Trojaan Investering BV, which has its legal base in Rotterdam, were uncovered in a joint investigation by The Irish Times and Lighthouse Reports, a European non-profit investigative news group.

Trojaan is an inter-company lender with financing operations that appear to help ABP to reduce its overall tax burden by shifting profit from certain Irish and UK entities to the Netherlands, where the money is taxed at a rate lower than it would be otherwise.

Experts say the strategy legally deployed by Trojaan under Dutch law amounts to “aggressive tax avoidance”. When such claims and other direct questions about the strategy were put to ABP, it said “we have been and remain tax compliant in all jurisdictions in which we operate” and made no further comment.

Although legal rules underpinning the strategy have been in place since the 1950s, the Dutch government eliminated some of the provisions at the start of this year. Responding to questions from Lighthouse Reports, the Dutch finance ministry said the structures in question could result in “part of the profit of a multinational company” not being included in the tax levied on profits in the Netherlands.

At issue was the law on financial dealings between companies in the Netherlands and sister companies in other jurisdictions such as Ireland.

If certain Dutch companies borrowed interest-free from a sister company in Ireland or another jurisdiction and then made a profit on interest-bearing loans it issued to another Irish sister company, the Dutch company could drastically cut the tax paid on that profit in the Netherlands.

This was done by declaring “imputed” interest costs to the Dutch tax authority that the company would have faced if it was borrowing on the open market from external lenders instead of borrowing interest-free in its internal structures. Even though such “imputed” interest was never actually paid, it was still deducted from the tax on the Dutch company’s profit.

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Corporate filings for Trojaan indicate that such provisions helped the ABP group cut its Irish tax bill because the interest that ABP’s Irish arm paid to Trojaan in the Netherlands would have been deducted from corporation tax paid in Ireland on its profit here.

According to academic papers by Jan Vleggeert, a tax law professor at Leiden University in the Netherlands, such schemes derive from 1957 case law of the Dutch supreme court. This allowed the “taxable profit” of a Dutch company to be set “at a lower level than the commercial profit” because certain benefits it received were considered to be a contribution of capital.

‘Tax adjustment’

“A 1978 Supreme Court decision broadened the scope of the doctrine to interest-free loans.” That case concerned an interest-free loan provided by a Swedish corporation to its Dutch subsidiary. Such provisions were brought into the Dutch corporation tax Act in 2001.

“It was quite common,” said Prof Vleggeert when asked how often international companies made use of the mechanism. “As of January 1st of this year imputed interest on loans issued before that date is no longer deductible if Ireland does not tax the corresponding interest income.”

ABP did not provide a reply to the question of whether it had taken any action as a result of such changes. But the Dutch government’s move suggests the opening for Goodman to cut tax in Ireland via “tax adjustments” in the Netherlands has now narrowed.

Still, accounts publicly filed for Trojaan show that it paid very low rates of tax on its profits for several years before a change in the presentation of its financial books obscured the details.

Trojaan’s 2013 pretax profit was €22.4 million but it had a tax liability that year of only €460,811, an effective tax rate of 2.06 per cent instead of the prevailing applicable Dutch rate of 24.95 per cent.

The company paid €215,945 tax on its €21.54 million pretax profit in 2014 and €309,997 tax on its €24.05 million pretax profit in 2015. It went on to pay €36,327 tax on its €24.41 million pretax profit in 2016 and the 2017 tax was €216,428 on its €24.57 million pretax profit.

Such profits were not derived exclusively from intercompany lending that Trojaan carried on with Irish entities as it also lent elsewhere in the ABP group. Although it is not possible from public records to determine the net tax benefit to ABP in its Irish operations or elsewhere, the Trojaan filings do reflect Goodman’s use of highly advantageous Dutch provisions.

That such profits later went to a Luxembourg entity is a further mark of the complexity of group’s financial affairs.

After decades in the meat business, there is nothing Goodman does not know about the fabled journey of beef from farm to fork. His group’s knowledge of intricacies of international taxation appears to be no less extensive.