Source: Le Monde Diplomatique
SABMiller is one of the world’s leading beverage companies and a new report by ActionAid makes its history in apartheid South Africa of particular interest.
Among the strategies deployed by SABMiller during sanctions imposed on apartheid South Africa were ‘relocating’ intangible assets, such as the company’s many trademarks, to the Netherlands, a ‘conduit’ country used extensively for shifting corporate profits.
Not only did this allow SABMiller to bypass sanctions, but it also made it easier to expand into foreign markets – without the associated stigma of being an apartheid South African company – and avoid taxation through transfer (mis)pricing. The benefits of Dutch holding companies mean there is no requirement to have local economic substance, little or no taxation on repatriated profits, and full tax exemption on capital gains and dividends received from qualifying subsidiaries. And as ActionAid reports, according to Dutch law, the costs of acquired trademarks can be set against taxable income.
Essentially, Dutch holding companies of the type maintained by SABMiller (initially Niagara 18 BV, later SABMiller International BV) exist for no other reason but to ’own’ and ’manage’ intangible assets in a tax haven. And since the geographic location of brands such Appletiser or Carling Black Label constitute non-rival assets – assets that generate endlessly scalable income without being scarce or finite (as oil, finance or fixed assets such as cars might be) – the location itself can easily be exploited to avoid tax.
Founded in 1895, South Africa Brewery Ltd (SAB) became SABMiller in 2002, following a merger with Miller Brewery. The company shifted headquarters to the UK. These days, the company is present in 31 African countries constituting strong favorites. In South Africa, for instance, by 2005, eight out of 10 favourite beers were SABMiller brands.
ActionAid has now completed a report on SABMiller (see the report and SABMiller’s response). Judging from this, old (bad) habits die hard. As the report notes, no fewer than 65 tax havens are used by the company, including global favourites such as Switzerland and Mauritius.
Perhaps the most shocking fact is that the owner of a small food and beer stall in Ghana, earning just UK £220 per month paid more income tax during the past two years than SABMiller’s subsidiary Accra Brewery, the country’s second biggest beer producer. The company claims to have made consistent losses. Though the brewery controls some 30% of the Ghanaian market, with Ghanaians drinking up £63.3 million worth of SABMiller’s beer) during the past four years (2007-2010), the company’s tax bill amounted to just £216,000.
How do such losses occur and what is SABMiller playing at? The report identified several old-hat tactics used by corporations, the first of which was ’going dutch’.
As before, brands are not located at the site of economic activity (where they are brewed and consumed) but rather shifted to jurisdictions presenting companies with little or no taxation or requirements for economic activities. As the receptionist at the registered address of one SABMiller’s myriad companies (and 150 other corporate addresses) disclosed to ActionAid, SABMiller had just ten staff based there, managing the brands. According to the report, ‘Back in 2005, SABMiller International BV acquired a vast number of the group’s trademarks from a sister Dutch company at their market value of well over £120m (US$200m). Each year it can use a proportion of this amount to cancel out any taxable profits that it has made, reducing its tax bill to near zero.’
In 2009, SABMiller remitted £25 million to SABMiller International BV from six African operations, rising to a total of £43 million if African operations that did not published accounts made payments at similar rates. This culminated in an estimated loss of £10 million to African nations.
But shifting trademarks is just one of many strategies. Management fees are another trick, sending capital to tax havens such as Swizterland’s Zug (with an income tax rate of 7.8%) under the guise of business costs. In SABMiller’s case, ActionAid has pegged the figure at £47 million, wiping out India’s profits entirely, depriving African governments, alongside India, of £9.5 million of tax revenue. The SABMiller’s Swiss-based Bevman Services AG may receive 4.6% of Accra Brewery’s turnover — £0.93million — for financial, technical and other services, but the switchboard operator at the registered address of Bevman had never heard of the company. Meanwhile the human resources department appeared confused that someone might seek employment, saying, ’We don’t do that kind of thing here.’
According to ActionAid, ‘Ghana Revenue Authority’s Commissioner General explained to us, ‘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.’
Other dodges include the pushing paper in Mauritius, by ’procuring’ Accra Brewery goods from the Mauritian entity Mubex, by accessing 3% tax rate (as opposed to Ghana’s 25%). Had the company selected the Global Business Category II entity (GBCII) kindly offered by the Mauritiuan government, this rate could have been reduced to zero.
One of the final strategies – a big favourite in African countries – is thin capitalisation. The report revealed that Accra Brewery, consistently declaring losses, borrowed a sum from Mubex seven times the sum of Accra Brewery’s capital. The ridiculous nature of the loan – internally loaning high-interest capital to subsidiaries in regions where economic activities do take place, and which are not tax havens – allows for artificial costs to diminish the profits (or alternatively, create losses) for subsidiaries. Funds are thereafter channelled into tax havens as repayment.
SABMiller denies the charges of tax avoidance – a technically legal mechanism of avoiding legally owed taxes through the ’outsourcing’ of tax havens. The company stated, ‘Compliance with tax laws underpins all of our corporate governance practices.’
‘SABMiller companies pay a significant level of tax. In the year ended 31 March 2010, the group reported US$2,929 million in pre-tax profit and group revenue of US$26,350 million. During the same period our total tax contribution remitted to governments, including corporate tax, excise tax, VAT and employee taxes, was just under US$7,000 million. Seven times that paid to shareholders. This amount is split between developed countries (23%) and developing countries (77%).’
What SABMiller fails to state is that total tax contribution conveniently cloaks the nature and source of taxation,bracketing in taxes paid by suppliers, customers and workers ie: taxes that are not actually paid by the company.
This is not, of course, specific to SABMiller. In Zambia, for example, it was documented that 50% of taxes remitted to government from mining giant Vendanta were generated from PAYE employee contributions.
ActionAid tells us that SABMiller, with over 150 brands, is joint owner of China’s biggest brewer and India’s second biggest, present in six continents and holding 94% of Latin America’s beer market across six countries. Africa, however, was described as its heartland. For a company profiting so well from the goodwill of citizens loyal to their brands, SABMiller appears to have aggressively used the same strategies as under apartheid. Only this time, economic apartheid, it seems, has simply been globalised in a perfectly legal way.
Khadija Sharife is the Southern Africa correspondent for The Africa Report magazine and a Visiting Scholar at the Center for Civil Society (CCS) based in South Africa.