The biggest tax treaty of its kind, which originated as a response to a report on SABMiller’s tax policies and which may become a model for a worldwide move to combat tax evasion and the erosion of national tax bases, is expected to be ratified by 21 African countries this year.
It will allow the countries to work together to investigate the tax affairs of multinationals across the continent.
The origin of the African Agreement on Mutual Assistance on Tax Matters was a meeting of African Tax Administration Forum (Ataf) members held in 2011 to discuss tax avoidance issues that had been raised in a report on SABMiller by ActionAid, an international development agency.
Ataf executive secretary Logan Wort said: “Nothing like this has ever been done anywhere before.”
He noted that in September the Organisation for Economic Co-operation and Development (OECD) was launching a project called “Tax inspectors without borders”, which would be an attempt to challenge aggressive tax management that resulted in the erosion of the tax base of countries across the globe, but particularly in developing countries.
The OECD’s move reflects increasing public frustration about tax avoidance by powerful multinationals. ActionAid, which last week described the Ataf tax agreement as “a great step forward in the fight to raise more tax revenue”, contended in its 2011 report that SABMiller used bilateral tax agreements to avoid tax in four African countries.
The key focus of the report was one of SABMiller’s principal subsidiaries, which is based in the Netherlands.
Although it has limited operations in the Netherlands, SABMiller’s latest annual report says it has 11 subsidiaries incorporated in that country.
The multinational beer group has a total of 82 principal subsidiaries scattered across the globe, from the UK to El Salvador to Italy to Kenya.
As would be expected, the principal activity of most of these subsidiary companies is described as brewing.
However, only one of the Netherlands-based companies – Grolsche Bierbrouwerij – has brewing as its principal activity. Nine of the other subsidiaries were described as holding companies and the 11th, SABMiller International BV, was described as a “trademark owner”.
Four of the Netherlands’ incorporated holding companies are involved in the group’s African operations.
SABMiller said last week that most of the Netherlands-based companies pre-dated the group’s 1999 London listing and reflected the historic links between the Netherlands and South Africa. A spokesman said the companies were all in accordance with the commercial structure of the group.
While ActionAid stresses that tax avoidance is not a foregone conclusion when using a Dutch holding company, its report accused SABMiller of using SABMiller International BV to deprive African countries of substantial amounts of tax income through aggressive tax management policies.
The report questioned why the trademarks for many of SABMiller’s iconic African beers, including Castle, were registered and owned 9 000km away in Rotterdam.
“The answer may be the novel set of tax rules offered by the Netherlands, which enables companies to pay next to no tax on the royalties they earn,” ActionAid said.
The report alleged that SABMiller was engaged in shifting profit out of its subsidiaries in developing countries to affiliates in jurisdictions where the income was subject to a lower effective tax rate. This was done through four types of payments: royalties, management fees, procurement fees for purchase of raw materials and interest payments.
SABMiller is emphatic that its tax practices are entirely appropriate and comply with recommended guidelines.
The 2011 Ataf meeting held to discuss the ActionAid report looked at establishing a legal framework that would allow the countries to take collective action on tax issues.
Last month, an Amsterdam-based NGO, the Centre for Research on Multinational Corporations, issued a report highlighting the adverse affects of double taxation agreements between the Netherlands and developing countries and recommended that developing countries undertook comprehensive assessments of the impact of these agreements.