Sunday, February 10, 2013

Sweet Profits

Associated British Foods, one of Britain's biggest multinationals, whose brands include Silver Spoon sugar, Twinings Tea and Kingsmill bread, Primark clothes and Ryvita, is avoiding paying millions of pounds of tax in an African state blighted by malnutrition. It contributed little corporation tax to the state's exchequer between 2007 and 2012, and none at all for two of those years (between 2008 and 2010).  Zambia Sugar,  recently posted record pre-tax profits and its huge plantation is increasing its capacity to produce more sugar for markets in Europe and Africa. Yet it paid less than 0.5% of its $123m pre-tax profits in corporation tax between 2007 and 2012.

The company benefits from generous capital allowance and tax-relief schemes in Zambia including one obtained by taking the Zambian government to court, but the investigation also found that it funnels around a third of its pre-tax profits to sister companies in tax havens, including Ireland, Mauritius and the Netherlands. Tax treaties between Zambia and some of those countries mean the state's revenue authorities are unable to charge their normal tax on money leaving their shores. The tax haven transactions of this one British headquartered multinational deprived Zambia of a sum 14 times larger than the UK aid provided to the country to combat hunger and food insecurity. There is an annual $2.6m payments to an Irish sister company whose accounts have stated that it has no employees. The firm also pays $3m a year to a sister company in Mauritius for access to "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". Yet when an ActionAid investigator, called the director of the Mauritius holding company and asked how many employees they had, he was told: "One … it's me." ABF says that the fees to Mauritius and Ireland are rolled up into their tax liability in South Africa, where they are taxed at 28%. Yet accounts show that in 2011/12 the entire tax liability in South Africa was $308,000 – the equivalent of just 4% of the $7m fees paid by Zambia Sugar to Ireland and Mauritius.

Its Nakambala Sugar plantation in the Mazabuka district are vital to local livelihoods. The plantation and factory made record profits in 2012 and is expected to exceed 400,000 tonnes of sugar production this year for its Europe and Africa markets. To fund its expansion last year, Zambia Sugar borrowed $70m from two commercial banks. The loan is in the Zambian currency kwacha and secured on Zambia Sugar's estate and assets in Mazabuka, and it is repaid via a Lusaka branch of Citibank Zambia. Yet, on paper, the loan is actually to the Irish subsidiary. Why? ABF told ActionAid: "Interest on loans to Zambia Sugar from such banks would have been subject to [Zambian] withholding tax. The banks would therefore have increased their interest charge to compensate for this."

Zambia Sugar's immediate owner is a Dutch co-operative. The owners of Dutch "cooperatiefs", in this case companies in Mauritius and Jersey, are classed as members rather than shareholders so the income they receive is not classified as taxable dividends. And under this structure Zambia can only apply a 5% tax on the cash leaving its shores, a smaller rate than normal because of a tax treaty between the Netherlands and Zambia.

 Mazabuka's Nakambala Urban health centre say two malnourished children die every month with it. At the school, 1,200 children fit into 12 classrooms in shifts taught by 20 teachers. In Zambia 45% of children are malnourished and two-thirds of the population live on less than $2 a day.

The total loss to tax avoidance by multinationals in the developing world is estimated to be around £70bn 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, campaigners say.


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