ActionAid investigation looks into financial arrangements of British multinationals
The Victoria Falls in Zambia, one of the world's poorest countries. Photograph: Nicole Cambre/Rex Features
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 FTSE 100 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 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.
Richard Brooks is the author of The Great Tax Robbery, to be published by Oneworld Publications next month.
• This article was amended on 10 February 2013. Associated British Foods has said in response to this piece that they do real business in Mauritius and other locations distant from Zambia. They also say that capital tax allowances available in Zambia at the time of the company's investment are the reason for the low Zambian corporate tax revenues.
But today's investigation by ActionAid into the financing arrangements of an African subsidiary of Associated British Foods plc, the FTSE 100 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 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.
Richard Brooks is the author of The Great Tax Robbery, to be published by Oneworld Publications next month.
• This article was amended on 10 February 2013. Associated British Foods has said in response to this piece that they do real business in Mauritius and other locations distant from Zambia. They also say that capital tax allowances available in Zambia at the time of the company's investment are the reason for the low Zambian corporate tax revenues.