ActionAid, a global NGO that tackles poverty, has accused SABMiller of depriving African countries and India of substantial amounts of tax income as a result of its aggressive tax management policies.
In a damning report released on Monday, ActionAid said that its investigation used published financial information, interviews with government officials and undercover research to find out how SABMiller avoided tax across Africa and India. “The cost to the governments affected may be as much as £20 million (R221m) per year.”
ActionAid does stress that SABMiller “isn’t a lone bad apple”, noting that its avoidance practices conformed to “the model followed by multinational firms the world over”. The report calls for change.
On Monday, SABMiller responded to the report, strongly rejecting allegations made by ActionAid. “SABMiller does not engage in aggressive tax planning… and the report includes (many) flawed and inaccurate assumptions.” In financial 2010 SABMiller said it paid $7 billion (R50bn) tax and reported revenue of $26.3bn, of which 77 percent was paid in developing countries.
ActionAid suggested that this figure was misleading as the bulk of it was made up of excise duties, which were levied on the consumption of alcohol and therefore borne by the consumer, not the company. In addition, the $7bn included the income tax paid by SABMiller’s employees. “A clear distinction is necessary between the taxes borne by a company and those that it collects from other taxpayers on behalf of the company,” ActionAid said.
One leading analyst said on Monday that if SABMiller was indulging in aggressive tax planning “then it’s not very good at it because its corporate tax rate (of 28.5 percent) is the highest of the four global beer groups”.
In its 40-page report, entitled “Calling Time on Tax Avoidance”, ActionAid notes that SABMiller is doing nothing illegal, but argues that it is “unethical”. “Throughout this report, we use the terms ‘tax dodging’ and ‘tax avoidance’ interchangeably. There is no suggestion that SABMiller has broken the law by evading tax,” states ActionAid.
The report, which focuses much attention on SABMiller’s operations in Ghana, alleges that the Ghanaian operation makes no profit because of tax avoidance and therefore pays no tax in that country.
The report describes four methods used by SABMiller, and most multinational firms, to minimise tax payments. In SABMiller’s case, the methods involve large payments made by subsidiaries in developing countries to sister companies in tax havens. ActionAid claimed that such payments, which were supposed to be made on an “arm’s-length basis”, could reduce or even eliminate profits in one place at a stroke of an accountant’s pen.
“Going Dutch” describes how many local beer brands sold by SABMiller subsidiaries in developing countries are not owned by the firm in the country in which they were invented, brewed and consumed, they are owned by a company based in the Netherlands. Thus, Rotterdam-based SABMiller International owns African brands such as Castle, Stone and Chibuku. This allows SABMiller to take advantage of Dutch tax rules that enable firms to pay next to no tax on royalties they earn. A few years ago, Irish pop group U2 transferred much of its business operations to the Netherlands to take advantage of these rules.
The “Swiss Role” involves SABMiller’s African and Indian subsidiaries paying “whopping management service fees to sister companies in European tax havens where effective tax rates are lower, mostly to Switzerland”.
In Ghana the fees amounted to 4.6 percent of annual revenue and in India they were enough to wipe out taxable profits entirely, ActionAid said.
“Taking a trip through Mauritius” involves SABMiller subsidiaries procuring goods from a sister subsidiary in Mauritius.
“Thinning on top” involves lending money between subsidiaries to maximise tax efficiencies for the benefit of the holding company.
SABMiller countered that it followed “all transfer pricing regulations within the countries in which we operate and the principles of the Organisation for Economic Co-operation and Development guidelines”.
SABMiller said it supported ActionAid’s proposals regarding improved management of taxation in developing countries.
* Ann Crotty owns 300 SABMiller shares. - Business Report