IBM under scrutiny by UK tax authority

The UK's tax authority, the Inland Revenue office, is investigating IBM to see if the computer giant has improperly evaded UK taxes, an IBM official has confirmed.

"I can confirm we have had an inquiry; an audit is underway," said IBM spokesman Ian Colley. "We are cooperating fully with British Inland Revenue officials."

Inland Revenue is auditing the company to see if its UK unit paid artificially high royalties to the US parent company, after former IBM employee Gerald Churchhouse raised the claims, according to a story in the Wall Street Journal.

Specifically, the tax authority is investigating fluctuations in royalty payments between 1991 and 1996, during which time IBM raised the percentage used to calculate royalty payments to the US parent from 8 per cent to 12 per cent for goods sold in the UK. According to the Churchhouse allegations, that saved the company as much as $US500 million in taxes by reducing the operating income of the UK unit, the story said.

Churchhouse was a sales and marketing manager who sued IBM after being fired in 1995, claiming he was fired for unearthing corruption, the story said. The suit was dismissed this year, after Churchhouse settled with IBM, the story said.

IBM's Colley would not comment beyond confirming the audit. The Inland Revenue office had no comment.

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