Brewer accused of depriving countries of revenue
The world’s second-largest beer company, SABMiller, is avoiding millions of pounds of tax in India and the African countries where it makes and sells beer by routing profits through a web of tax-haven subsidiaries, according to a report published by ActionAid on Monday.
The company, whose brands include Grolsch, Peroni and Miller, and African beers Castle and Stone Lager, is accused by the development charity of siphoning profits out of developing countries and parking them offshore.
The SABMiller group is listed in London and makes profits of nearly £2-billion a year. ActionAid estimates it may have reduced its African corporation tax bill by as much as a fifth last year, depriving poorer countries of up to £20m in tax, or enough to send a quarter of a million children to school. However, SABMiller said it completely rejected ActionAid’s interpretation of its business structures.
“SABMiller does not engage in aggressive tax planning in any part of its operations and the report includes a number of flawed assumptions,” it said in a statement. “SABMiller companies pay a significant level of tax.” It added that SABMiller was a major direct investor, employer and taxpayer in Africa and other developing countries, making a substantial economic contribution to the continent and elsewhere. The company said there were sound commercial reasons for the location of its subsidiaries and that those offshore were fully taxed in the UK as controlled foreign companies (CFCs).
SABMiller’s head of media relations, Nigel Fairbrass, said corporate structures used by his company benefited its local businesses, since centralised procurement, intra-group finance and management expertise gave them better prices and services than they could obtain individually. “We dispute that we have avoided paying any tax,” he said.
But ActionAid argues the effect has been to deprive developing countries of tax for services. SABMiller’s subsidiary in Ghana, Accra Brewery, for example, sells £29-million of beer a year, but in the past two years it has declared a loss, and it has paid corporation tax in only one of the four years from 2007-2010, the report, Calling Time: Why SABMiller should stop dodging taxes in Africa, finds.
Martin Hearson, ActionAid’s tax specialist and co-author of the report, said: “Outrageously, SABMiller’s subsidiaries in Ghana and India have been operating income tax-free because of the company’s use of tax havens. Tax authorities in developing countries are fighting hard to stop tax dodging but the reality is they are locked in a David and Goliath-style battle with multinational companies. International standards governing the taxation of big business are stacked against them.”
SABMiller said that the Accra subsidiary’s losses were the result of intense competitive pressures and difficult trading conditions.
Techniques used to avoid corporation tax onshore have become normal business practice among multinationals in the last decade. They depend on the secrecy of tax havens and on employing highly paid accountants and lawyers to exploit loopholes in the law or to play one country’s tax system off against another’s. ActionAid acknowledges that these techniques are legal and commonplace, but is launching a campaign to condemn them as unethical. The Organisation for Economic Cooperation and Development estimates that tax havens cost Africa several times what it receives in aid in lost tax revenue.
ActionAid looked at the accounts of a sample of eight SABMiller subsidiaries across five African countries—Ghana, Mozambique, Tanzania, South Africa and Zambia—and in India. It says it has identified four different types of tax planning used by the company that minimise its tax bills in those countries. These include:
A tax-saving dodge in which ownership of brand names and trademarks is moved from the countries where the goods are produced and held instead in The Netherlands. Onshore subsidiaries are then required to pay royalties to the separate brand-controlling subsidiary.
The Netherlands has generous tax rules allowing multinationals to pay almost no tax on royalties they earn by writing down the value of the trademark against them. SABMiller International BV in The Netherlands holds the rights to international sales of many African brands such as Castle, Stone and Chibuku.
Six SABMiller companies in Africa paid this one Dutch company £25-million in royalties last year, according to ActionAid’s scrutiny of their accounts. If the other African subsidiaries that do not publish accounts also made payments at the same rate, the total paid to the Dutch company would be £43-million, which corresponds to an estimated tax loss of £10-million to African countries last year. SABMiller’s rights to its Peroni brand are held in the British tax haven of the Isle of Man. SABMiller said there were historical reasons that had nothing to do with tax for brands being held in various subsidiary locations.
It said its Dutch company performed an important expert service and its profits were subject to full UK tax as a UK CFC. Peroni royalties were also subject to full UK tax.
ActionAid says SABMiller makes use of another tax avoidance strategy that has become commonplace among multinationals in recent years by locating management services in a subsidiary in the tax haven of Switzerland.
The African and Indian companies’ accounts show that they pay huge “management service fees” to European sister companies, mostly in Switzerland. In Ghana, for example, according to the report, fees amounting to 4.6% of the company’s net revenue every year were paid to Bevman Services AG in the canton of Zug; in India, the management fees are enough to wipe out taxable profits. The report estimates that management fees paid by SABMiller companies in Africa and India amount to £47-million each year, depriving these governments of £9,5-million of tax revenue.
SABMiller has said that management fees to its Swiss Bevman subsidiary reflected the fair value of the services provided to local companies and helped them by cutting their administrative costs. It denied that the structure had been set up for tax purposes.
The Mauritius connection
Until 2008, SABMiller’s African purchasing was centralised through a regional hub company in South Africa. But in 2008 the group created a new company in Mauritius, where the maximum effective tax rate for global business companies is 3%. Goods are now procured by Ghana’s Accra brewery on paper not from elsewhere in the continent, but from 7 000km away in this Indian ocean subsidiary. Tax haven secrecy makes it impossible to see how much profit the Mauritius subsidiary makes on these transactions, and the arrangements have only been put in place recently, but according to ActionAid, the new arrangements coincided with a dramatic fall in Accra Brewery’s gross profit.
Thin capitalisation In another transaction identified by ActionAid as a tax dodge, Accra Brewery borrowed £8,5-million from the same Mauritius company in 2009-10. The loan was more than seven times Accra Brewery’s total capitalisation. ActionAid’s tax expert estimates that the interest costs on this loan charged to Ghana will wipe out £76 000 of Accra Brewery’s tax liability each year. SABMiller responded that the loan had been made so that Accra Brewery could pay its creditors and the margins on it represented a fair rate based on the risk.
SABMiller has numerous subsidiaries offshore, including 11 in Mauritius, eight in the British Virgin Islands, six in Switzerland and six in British crown dependencies, but it said that it did not regard these as tax-haven companies. The company says it complies with all tax laws and is transparent with revenue authorities around the world.
“In 2009/10 we invested more than $500m in Africa and further expanded our operations with new breweries or acquisitions. SABMiller companies pay a significant level of tax. In the year ended 31 March 2010, the group reported $2,929-million in pre-tax profit and group revenue of $26,350-million. During the same period our total tax contribution remitted to governments—including corporate tax, excise tax, VAT and employee taxes—was just under $7-billion, seven times that paid to shareholders,” the company said. “This amount is split between developed countries (23%) and developing countries (77%).”
Small time tax
Marta Luttgrodt sells beer from her small stall in the shadow of Accra Brewery, SABMiller’s Ghanaian subsidiary in the capital city. Accra was the site of West Africa’s first brewery when it opened in 1933, and SABMiller has a long history, going back to 1895, of making African beers to sell to Africans in Africa. Luttgrodt sells beer from the factory for 90p a bottle and manages to make £220 profit a month. She pays fixed fees of £11 per month to the Accra authorities and a further £9 per quarter to the Ghana Revenue Authority. Meanwhile, Accra Brewery has paid no corporate income tax in Ghana in the past two years.
“Wow, I don’t believe it,” she said when told this. “We small businesses are suffering from the authorities—if we don’t pay, they come back with a padlock.” The Ghanaian authorities have been making more effort to bring businesses into the tax system and closing down traders who do not pay their bills.
SABMiller said its companies “pay a significant level of tax”, adding that in the year ended March 31 2010, the group reported $2,93-billion in pre-tax profit . “During the same period our total tax contribution remitted to governments—including corporate tax, excise tax, VAT and employee taxes—was just under $7-billion, seven times that paid to shareholders,” the company said. “This amount is split between developed countries (23%) and developing countries (77%).” - guardian.co.uk