The Associated British Foods (ABF), one of the biggest British multinationals, whose brands include Silver Spoon sugar and Twinnings Tea, has been accused of avoiding to pay its million-dollar tax bill to Zambia, one of the poorest countries in the world.
According to "Sweet Nothing," a report published by ActionAid, an anti-poverty charity, Zambia Sugar, the ABF’s Zambian sugar-producing subsidiary has generated profits of $123 million, but admits to paying “virtually no corporate tax” in Zambia.
Moreover, through a complex series of transactions, aimed at reducing its tax liability, the company has managed to move out of Zambia a third of its pre-tax profits, amounting to more than $13.8m a year, to sister companies in tax havens, including Ireland, Mauritius and the Netherlands. It thus funneled over $2.6m as "purchasing and management fees" to an Irish sister company that has repeatedly declared in its accounts that it has no employees. Additionally, Zambia Sugar has paid $3m a year to a sister company in Mauritius so as to access "trade contacts with customers in the European sugar market, transportation of sugar to Europe, foreign currency management and the availability of cost effective credit terms.”
The report highlights the fact that Zambian tax is 14 times larger than the UK's entire food aid budget to the country and 10 times larger than the UK-allocated aid funds for education. Chris Jordan, the ActionAid report’s co-author, stressed that it is shocking to see ABF go to great lengths to ensure that it pays almost no corporation tax in a particularly poor country.
He further pointed out: "Tax avoidance is not victimless financial engineering. In Zambia 45 percent of children are malnourished and two-thirds of the population live on less than $2 a day." He also emphasized that, as a result of the company’s tax avoidance schemes and special tax breaks, Zambia’s public services have lost US$27 million since 2007, which could have been used to put 48,000 children in school, provide solutions to hunger and poverty and help Zambia escape aid dependency.
Nevertheless, ABF strongly denied ActionAid’s allegations, by stressing that Illovo, the African sugar-producing subsidiary which owns Zambia Sugar, had paid $189 million in taxes since 2007. The multinational claims that Action Aid’s report is "highly inflammatory account of the company’s tax position that is incomplete at best and factually wrong in places.”
In a statement, Illovo denied its involvement in “anything illegal, immoral or in any way designed to reduce the tax rightly payable to the Zambian government.” Emphasizing that Illovo is proud of Zambia Sugar and the key contribution it has on the Zambian economy, the statement claimed that Zambian authorities granted the company capital allowances to reduce its tax burden, so as to support its $235m investment at its Mazakuba sugar plantation. Mazakuba is set to become the largest sugar mill in Africa, employing over 5,000 people, and to expand its exports to exceed the 400,000 tons of sugar it produced in 2012 for its European and African markets.
It is estimated that the multinationals’ tax avoidance in the developing world has led to the loss around $110bn a year, enough to save the lives of 85,000 children under the age of five in the world's poorest countries every 12 months.
The accusations about ABS tax avoidance in Zambia come at a time when several major U.S.-owned global companies are facing questions regarding their tax payments in the UK, mounting public anger in the country. Starbucks was accused of paying less than one percent in tax on more than $4.7bn in UK sales since 1998, Google paid only $9.5m in tax on UK revenue out $625m in 2011, while Amazon did not pay any corporation tax at all last year, although grossing in more than $5bn in UK sales.
ActionAid’s report will put pressure on George Osborne, the UK Chancellor of the Exchequer and Second Lord of the Treasury, to confront the issue of international tax loopholes and corporate tax avoidance during the upcoming G20 meeting of world leaders, taking place this week, and at the June G8 summit. In fact, in January 2013, British Prime Minister David Cameron promised during the World Economic Forum in Davos that the UK’s G8 chairmanship will focus on countering tax avoidance and that companies pay their respective dues. Nevertheless, some politicians, such as Liberal Democrat Lord Oakeshott, have argued that the change must start domestic legislative changes that would force multinational companies, such as ABF, to show “the tax they actually pay in each country where they operate, and explain fully in each case why it is so far below the headline corporation or profits tax rate."