The UK based civil society group ActionAid says, its investigation of the multinational brewer SABMiller has uncovered tax evasion tactics that is denying Ghana revenue amounting to about GH¢2.2 million.
ActionAid published a report Monday November 29, 2010 titled “Calling Time: Why SABMiller should stop dodging taxes in Africa” detailing what it says are SABMiller’s strategy to dodge taxes in Ghana.
The report ActionAid was written after it looked at financial information, held interviews with government officials and conducted undercover research to find out how SABMiller avoids tax across Africa and India.
In a telephone conversation with ghanabusinessnews.com Monday, an official of ActionAid who is also one of the authors of the report, Martin Hearson, said the group investigated SABMiller not because ActionAid wanted to say “SABMiller is a bad company.” He said “we wanted to investigate cases of British companies that are dodging taxes in Africa, and nothing else.”
He accused SABMiller of pretending to be a caring company. “They have a work place HIV/AIDS programme in Ghana which is a good thing, and at the same time they are dogging taxes. We are disappointed in them,” he said.
ActionAid said it found that SABMiller used various tactics to evade taxes. Under what ActionAid calls Tax Dodge 1: Going Dutch, it says many of the local brands sold by SABMiller’s subsidiaries in developing countries are not owned by the country in which they were invented, and where they are brewed and consumed, but in the Netherlands.
It indicated that Rotterdam based SABMiller International BV owns African brands such as Castle, Stone and Chibuku – and takes advantage of a novel set of tax rules offered by the Netherlands that enables companies to pay next to no tax on the royalties they earn. SABMiller International BV has negotiated a deal with the Dutch revenue authority that is worth tens of millions of pounds in reduced taxes.
The six SABMiller companies in Africa paid this Dutch company £25 million in royalties last year, according to their most recent accounts. If the company’s African operations that do not publish accounts also make payments at the same rate, the total can be expected to be £43 million. This corresponds to an estimated tax loss to African countries of £10 million, ActionAid said.
In the second tax dodge that it calls The Swiss Role, ActionAid says SABMiller’s African and Indian subsidiaries pay whopping ‘management service fees’ to sister companies in European tax havens where effective tax rates are lower, mostly to Switzerland.
In Ghana, it says the fees amount to 4.6% of the company’s revenue every year; in India, they are enough to wipe out taxable proﬁts entirely, it added.
Citing the head of Ghana’s revenue collecting organization, it said in Ghana, the existence of an agreement to pay management fees can be enough to comply with local regulations, but the head of the Ghana Revenue Authority told ActionAid that “management fees is an area that we know is being used widely [to avoid tax], and it’s mainly because it’s difficult to verify the reasonableness of the management fee”.
ActionAid estimates that management fee payments by SABMiller companies in Africa and India amount to £47 million each year, depriving these governments of £9.5 million of tax revenue
ActionAid accuses SABMiller of using a Mauritius company Mubex to evade tax in Ghana. According to ActionAid goods are procured by Accra Brewery, SABMiller’s Ghana subsidiary from another SABMiller subsidiary in Mauritius.
It says Mubex makes a proﬁt on this transaction, “though tax haven secrecy means we can’t see how much.” But when its proﬁts are taxed at 3% compared to 25% on its trading partner in Ghana, there’s plenty of incentive to ensure it makes as much proﬁt as possible. This dodge is too new to be able to draw any conclusions about the tax lost, but it may be as much as £670,000 per year in Ghana, it adds.
In what ActionAid calls Thinning on Top, it says Accra Brewery borrowed a large amount of money from Mubex. The loan it says “is bigger than any mortgage lender would permit, more than seven times Accra Brewery’s capital.” This means that the company is ‘thinly capitalised’. “We estimate that the interest costs on this loan will wipe out £76,000 of Accra Brewery’s tax liability each year,” it concludes.
Accra Brewery officials however have declined to comment, when ghanabusinessnews.com called to get their responses. They indicated that the report concerns the group SABMiller and not Accra Brewery specifically and therefore they cannot comment. They however forwarded a press statement in response to the report from SABMiller to ghanabusinessnews.com. In the statement SABMiller denied categorically any wrong doing.
“Compliance with tax laws underpins all of our corporate governance practices. We actively engage with revenue authorities and we are open and transparent with our affairs. We follow all transfer pricing regulations within the countries in which we operate and the principles of the OECD guidelines,” it said.
According to SABMiller, it is a major direct investor, employer and tax payer in Africa, and its economic contribution to the continent is substantial. “In 2009/10 we invested more than US$500 million in Africa and further expanded our operations with new breweries or acquisitions in Tanzania, Mozambique, Nigeria, Ghana, Southern Sudan, Uganda and Ethiopia,” it added.
By Emmanuel K. Dogbevi