British multinationals are using the same tax tricks that have sparked fury at Starbucks and Google – alternative news
That the world’s biggest companies avoid tax on a grand scale is no longer much of a revelation. We know only too well how Starbucks’ Dutch royalties, Amazon’s Luxembourg hub and Google’s Irish operations diminish their tax bill.
But today’s investigation by ActionAid into the financing arrangements of an African subsidiary of Associated British Foods plc, the FTSE100 company behind brands ranging from Ovaltine to Primark, shows how similar practices are hitting some of the world’s poorest countries.
Africa’s largest sugar producer, Zambia Sugar plc, deploys the familiar techniques of making tax-deductible payments to related companies in distant locations such as the tiny Indian ocean island of Mauritius, where they have little or no real business. As a result, ActionAid discovered, the company has shaved tens of millions of dollars off its tax bills in Zambia.
Such amounts represent relatively small savings for a conglomerate like Associated British Foods, with annual global pre-tax profits of £750m, but they are a devastating loss for countries like Zambia. Corporate taxes account for more than 20% of total tax revenues of $4bn in a country where 8 million people live in absolute poverty.
And if, as parliament’s public accounts committee has discovered, countries like Britain are struggling to counter such “transfer pricing” arrangements, those with even scarcer resources and less expertise have no chance. Or, as one of the Zambian tax authority’s advisers put it: “On transfer pricing we are, pardon my language, getting fucked.”
ActionAid rightly holds companies responsible for this, but it also points out how they are exploiting international tax law – written by richer northern nations under the auspices of the Organisation for Economic Cooperation and Development – that is biased against poorer countries.
Enforced through bilateral taxation treaties between countries, the rules of the game compel tax authorities to respect transactions such as the payment of interest, royalties and fees between companies within the same multinational group, even when the recipients are based in tax havens and the arrangements have little purpose beyond tax reduction.
Reform to this system is evidently long overdue but, with hundreds of countries signed up to it, progress is glacial. In the meantime political rhetoric such as David Cameron’s Davos call for companies to “wake up and smell the coffee” stands as no more than a futile plea to the world’s multinationals’ better natures.
What will have an impact are George Osborne’s relaxations of the UK’s “controlled foreign companies” laws governing the diversion of corporate profits into tax havens. The changes are designed, a Treasury memo revealed, “so that [the laws] have a better fit with the way in which [multinational companies] structure their commercial operations…” That is, to facilitate “tax efficient supply chain management”.
There is a smell coming from the Government’s response to corporate tax dodging at the expense of the world’s poor, but it’s not coffee.
dailyalternative | alternative news – Forget Starbucks – what UK companies are doing to avoid tax is far worse