Countries stand to make less on SABMiller tax
DEVELOPING countries where SABMiller operates could lose out on substantial tax revenue if AB InBev is able to drive down SABMiller’s effective tax rate.
To the extent that AB InBev manages to bring SABMiller’s tax rate of 26% into line with its rate of 18%, there could be a significant tax loss in developing countries in which SABMiller operates, which is the main attraction for AB InBev.
A reduction to an 18% tax rate would have cut SABMiller’s overall tax bill by about $400million from $1.3-billion to less than $900-million.
The proposed merger of SABMiller with AB InBev, which will create the largest profitgenerating consumer company in the world, is set to make things considerably more difficult for African tax authorities.
Not only will the merged entity be considerably larger but, judging by its tax rate, AB InBev appears to exercise a much more aggressive tax management policy than SABMiller.
Given the principle of tax secrecy and the fact that multinationals do not provide country-by-country IN A FROTH: There could be a significant tax loss in developing countries in which SABMiller operates details of their corporate income tax payments, it is impossible for outsiders to know how AB InBev manages to secure such a low tax rate. One industry source speculates it may be influenced by its acquisitions, many of which were implemented through Brazil, where the tax authorities have a generous policy towards the write-off of goodwill. “Brazil has an extremely complex tax regime,” said the industry insider.
In addition, Belgium, where AB InBev is now headquartered, offers attractive scope for tax management.
Logan Wort of the African Tax Administration Forum (ATAF) cautioned against assuming tax avoidance by either company and said more detailed information was needed.
“This information would not necessarily conclusively demonstrate that either group was engaged in tax avoidance, but it would provide useful indicative information on the extent of tax aggression.”
In a bid to deal with the increased complexity, UK-based NGO ActionAid has called on AB InBev to develop a new tax code of conduct to show how the group intends to apply sustainable development principles to its tax affairs.
ActionAid campaign manager Savior Mwambwa says such a code would provide transparency and assist tax authorities in African countries.
Mwambwa believes there will be pressure to reduce the current 26% tax rate on SABMiller profits and that regional tax protocols need to be developed to counter this pressure.
“New multilateral rules are being developed by the G20 and Organisation for Economic Cooperation and Development, [OECD] where Africa’s voice is not loud enough. We need to focus on the principle that companies are taxed where the profit is made.”
In 2011, ActionAid released a report alleging SABMiller was engaged in shifting its profits out of its subsidiaries in developing countries.
The ActionAid report was the subject of the ATAF’s inaugural meeting in June 2011, which was attended by Tanzania, Zambia, Kenya, Ghana and South Africa.
At the time, Wort stressed the meeting was not to discuss SABMiller, which would have been illegal in terms of tax privacy laws, but to discuss in general the tax concerns raised by the ActionAid report.
Participants at the meeting acknowledged the capacity constraints facing their tax authorities, which made it difficult for them to challenge powerful multinational companies.
The ATAF is pushing to develop a regional framework for tax treaties that would provide more protection for Africa’s tax base than is offered by the OECD framework that is used. But politics is hampering the process.
In its 2011 report, ActionAid alleged SABMiller shifted profits from developing countries through the use of royalties, management fees, procurement fees for raw material purchases and interest payments
Last week a competition lawyer said that any attempt to address the tax issue relied on the existence of well-resourced tax authorities in each jurisdiction. “Although the competition authorities in most of the affected African states are required to address ‘public interest issues’, tax considerations are beyond their authority,” said the lawyer.