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SABMiller faces tax scandal........................................... .

Discussion in 'Biashara, Uchumi na Ujasiriamali' started by Rutashubanyuma, Dec 20, 2010.

  1. Rutashubanyuma

    Rutashubanyuma JF-Expert Member

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    By ALVAR MWAKYUSA, 19th December 2010 @ 23:07, Total Comments: 0, Hits: 87

    AN international charity organization, ActionAid, has released a scathing report accusing the Tanzania Breweries Limited (TBL) parent company, SABMiller Plc, of evading taxes amounting to millions of pounds in African countries in which it operates, including Tanzania.

    According to the report titled; "Calling Time: Why SABMiller should stop dodging taxes in Africa," Tanzania could be losing up to 1.44 million Pounds (about 3.6bn/-) per annum from the said malpractices.

    SABMiller controls majority shares in TBL with 52 per cent, while its former business partner turned rival East African Breweries Limited (EABL) has a 20 per cent stake.

    The remaining 28 per cent stake is owned by the Tanzanian public through the Dar es Salaam Stock Exchange (DSE) where TBL is listed.

    The company also has controlling interests in Tanzania Distilleries Limited (TDL).

    TBL's beer brands include Safari Lager, Kilimanjaro Premium Lager, Ndovu Special Malt, Castle Lager as well as Balimi Extra Lager, Eagle Lager, Eagle Dark, Bia Bingwa and Safari Sparkling Water.

    Other prominent brands associated with the TBL group are Konyagi Gin and Amarula Cream.

    TBL paid taxes of 190bn/- in 2009, up from 164bn/- paid in the year 2008.

    The report, which was released recently, accuses the world's second-largest beer company of 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.

    The company is accused by the charity of siphoning profits out of developing countries and parking them offshore.

    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 20 million pounds in taxes.

    However, the Tanzania Revenue Authority (TRA)'s Director for Taxpayer Services and Education, Mr Protas Mmanda, told the 'Daily News' in a telephone interview that the authority was unaware of the racket.

    "I have to see the report and cross check with responsible departments before I can comment," said Mr Mmanda.

    He, however, said TRA was aware that some multi-national companies have been engaged in tax planning practices.

    "We are,however,in a position to detect such malpractices when they occur," he affirmed.

    And in written response to the 'Daily News,' SABMiller's Corporate Affairs Director, Sue Clark, refuted the allegations.

    "We do not engage in aggressive tax planning and we completely reject ActionAid's assessment that any tax has been 'lost' due to aggressive tax planning.

    "The contention that SABMiller employs tax avoidance techniques in Africa ignores an overwhelming amount of evidence to the contrary," she said.

    Adding; "ActionAid has somewhat cynically created national figures of tax avoidance based on business structures with sound commercial purposes - We reject ActionAid's allegations in their entirety - SABMiller is proud of its African heritage and our ongoing commitment to the continent."

    She maintained that the company's future business success depends on growth and development in Africa, noting that last year alone it invested $500 million in breweries and bottling plants in Tanzania, Mozambique, Nigeria, Ghana, Southern Sudan, Uganda and Ethiopia, creating thousands of jobs.

    ActionAid argues in the report that the effect has been to deprive developing countries of tax for services.

    SABMiller's subsidiary in Ghana, Accra Brewery, for example, sells 29 million pounds worth 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.

    ActionAid's tax specialist, Mr Martin Hearson and co-author of the report, was quoted by British media as having remarked thus; "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."

    For its part, 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 Organization for Economic Co-operation and Development (OECD) estimates that tax havens cost Africa several times what it receives in aid in lost tax revenue.

    The international NGO looked at the accounts of a sample of eight SABMiller subsidiaries across five African countries namely Tanzania, Ghana, Mozambique, South Africa, Zambia and in India.

    It says it has identified four different types of tax planning used by the company that minimize its tax bills in those countries. These include:

    Going Dutch;
    This is 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 pounds in royalties last year, according to ActionAid's scrutiny of their accounts.

    The SABMiller official admitted, however, that some of the international rights for the sale of certain beer brands, where they are traded outside their country of origin, are held in the Netherlands.

    "For example, Castle Lager is owned in South Africa by our local operating subsidiary, The South African Breweries Limited. However, the brand rights to Castle Lager sold outside of South Africa are owned in the Netherlands, if not in the relevant African countries," she remarked.

    The Mauritius connection
    Until 2008, SABMiller's African purchasing was centralized 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 per cent.

    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.
    The group also defended 'regionalizing' some procurement of goods and services in locations such as Mauritius in order to 'avoid duplicating these functions in each local market and to enable our operations in small developing economies to get a better deal in procuring goods and services."

    Thin capitalization;
    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 capitalization.

    ActionAid's tax expert estimates that the interest costs on this loan charged to Ghana will wipe out 76,000 pounds 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 the past ActionAid has made some sensible points concerning tax. We actually support some of their recommendations regarding improved management of taxation in developing countries, including greater investment in the capability of local tax authorities and the fact that business should be taxed fairly," remarked Ms Clark.

    Swiss role;
    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 per cent of the company's net revenue every year were paid to Bevman Services AG, the management fees are enough to wipe out taxable profits.

    According to the report, the management fees paid by SABMiller companies in Africa and India amount to 47 million pounds each year, depriving these governments of 9.5 million pounds of tax revenue.
     
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