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Sky defends UK tax contribution after magazine controversy

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Sky has defended its contribution to the UK economy, following controversy over a magazine it published that was part of a tax avoidance scheme to save the company millions.

A report in The Guardian yesterday highlighted that the satellite broadcaster saved millions in VAT with the Sky TV listings magazine, whilst simultaneously outraging satellite customers by charging them £2.20 per month of their subscription for the title.

The firm used a tax loophole, which has since been closed, that meant magazines and newspapers were zero-rated for VAT, enabling Sky to avoid VAT on a certain percentage of its revenue.

Based on a saving of £3 to £4 for each of Sky's 10m customers, The Guardian calculated that this would have brought a saving of between £30m and £40m a year to the firm.

But a Sky spokesman noted that the company had done nothing illegal, and makes a major contribution to the UK tax revenue every year.

"The TV listing magazine that Sky used to publish was, in common with all newspapers and magazines, zero-rated for VAT," he said.

"Sky directly contributes more than £1 billion a year in tax - a total of 1.4% of all taxes paid by the 100 largest FTSE companies. We're proud of the significant - and growing - contribution we make to the British economy."

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Sky customers had previously turned to online message boards to express their objections to paying for the Sky magazine, which was produced in-house by BSkyB Publications.

In a forum thread almost three years ago entitled "£2.20 Sky Magazine", Digital Spy readers first expressed concern about the charge for the magazine.

dodgydodgy posted in February 2010: "I've just opened up the new electronic Sky magazine that was emailed to me and I notice in (incredibly) small writing at the bottom: £2.20 of your package price is paid by you to BSky Publications Ltd for this Magazine.

"I don't want the magazine (who does?!), so is there any way to have my subscription reduced by £2.20 do you know?"

But after contacting Sky, some customers were informed that their subscriptions were discounted due to the magazine, and if they opted out, then they would no longer receive the discount.

Another forum user, named theboss81, questioned whether Sky was claiming tax relief on the magazine, and also hit out at the promotion of its high definition television service.

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The user posted in February 2010: "Just read my Sky mag and this month it is just one big HD promo...every single page has HD mentioned. apparently 'In her new show, Fiona Phillips discovers the emotional power of HD'. Her new show is not anything to do with HD.

"So is this a magazine that Sky should be claiming tax relief on or is it just a promo advert for HD????"

After the tax loophole was closed in spring 2011, Sky announced a scaling down of its magazines operation, and by October that year all publications had been pulled and BSkyB Publications wound down.

The move was initially assumed to be down to cost cutting as it came right in the midst of the financial crisis.

Sky did nothing illegal with its magazines or BSkyB Publications, and the VAT approach is what any efficient company would take to save money. But the firm has left itself open to criticism for charging subscribers £26.40 a year for what was, in part at least, a tax reduction measure.

John Christensen of Tax Justice Network told The Guardian: "Tax avoidance is now a high-risk activity, not just to the companies involved, but also to the reputations of their professional advisers."

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