MONEY MATTERS: The past few days have not been easy for British-based fashion brands: Last week, Burberry’s shareholders rejected the multimillion-pound pay package of the company’s chief executive and chief creative officer Christopher Bailey — albeit on a non-binding basis — while on Friday evening, Britain’s Channel 4 TV aired a program that criticized the way Net-a-porter Group pays its taxes.

While Channel 4 emphasized Net-a-porter’s accounting and tax practices are entirely legal, and that no laws have been broken, it wagged its finger at a share-based payment plan used as remuneration for employees that has been in effect since Compagnie Financière Richemont took control of the online luxury retailer in 2010. The plan effectively creates losses on a balance sheet that can be carried into future years, thereby reducing the amount of tax for which a company is liable.

This story first appeared in the July 14, 2014 issue of WWD. Subscribe Today.

Channel 4 accused Net-a-porter of working within the letter — but not the spirit — of the law, and it also lambasted the British tax authority, Her Majesty’s Revenue and Customs, or HMRC, for not cracking down hard enough on certain corporate tax practices generally.

Net-a-porter isn’t the only company that offers a share-based payment plan for its employees, while the balance sheet that Channel 4 examined is only reflective of business done in the U.K. The retailer is a private company, and part of Richemont, which does not break out the accounts of its separate divisions.

The group’s ceo, Mark Sebba, told WWD: “The Net-a-porter Group Ltd. notes the media comment regarding its U.K. tax status. Net-a-porter is a successful U.K.-based global business that employs over 1,500 people in the U.K. and a further 800 worldwide, and contributes significantly to the U.K. economy.

“The company continues to invest significant sums in expansion, development and innovation. Net-a-porter has every intention of maintaining its U.K. tax domicile for its U.K. operations, and paying all taxes due in line with the law, best practice and HMRC’s policies. Since its foundation in 2000, Net-a-porter has never sought to avoid paying tax in the jurisdictions in which it operates.”

A spokesman for HMRC said that the body does not discuss the tax affairs of individual businesses or companies, but that generally speaking: “In calculating its profits for corporation tax, any company making share-based payments as remuneration for employees will often only be able to make tax deductions matching the amount and timing of the income tax charges on the individual recipients, and not for the accounting entries made in respect of the payments.

“As a result, significant share-based payments may not necessarily reduce a company’s current tax expense in its accounts, or the amount payable to HMRC in corporation tax, but a future tax deduction (expected to be available when the shares vest with the individual, and give rise to an income tax charge) will be recorded as a deferred tax asset (or a reduction in an overall deferred tax liability), to report the fact that tax relief is expected to be available in [the] future for something for which there has already been an accounting expense.”

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