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AIA

British sugar giant under fire over tax

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11th Feb 2013
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Anti-poverty charity ActionAid has accused Associated British Foods of engaging in tax avoidance schemes designed to prevent paying millions of pounds in tax to the government of Zambia.

As detailed in a new report published by the charity, the London-listed group has been paying “virtually no corporation tax” in Zambia, one of the poorest countries in the world.

Zambia Sugar recently posted record pre-tax profits and reported its plantation would be increasing capacity to produce more sugar for the European and African markets. The subsidiary contributed less than 0.5% of its US$123m pre-tax profits in corporation tax between 2007 and 2012, and ActionAid hopes these findings will add pressure on the Chancellor to make progress in tackling international tax avoidance.

The charity claims the African subsidiary found ways of drawing off a third of its pre-tax profits out of Zambia into a number of different tax havens.

Zambia Sugar is owned by Illovo Sugar Ltd, the central parent company of all ABF’s African sugar operations, via a network of intermediate companies in Mauritius, Ireland, the Netherlands and Jersey.

ABF finance director John Bason told the Financial Times that the €4m paid to Ireland was for expatriate salaries in Zambia, the £2m to Mauritius was for export services which Zambia “lacked the capability to manage,” and ABF’s €4m share of the dividend was paid through a Dutch holding company.

However the multinational, whose household brands include Silver Spoon, Kingsmill and Twinings, said the allegations of wrongdoing are “inaccurate” and “highly inflammatory”

In a statement ABF emphatically denied engaging in anything “illegal, immoral or in any way designed to reduce the tax rightly payable to the Zambian government,” and said that globally it pays a higher rate of tax on its profits than it otherwise would due to its corporate structure.

The FTSE100 company also attributed the zero corporate taxes to capital allowances and the fact that Zambia offers tax breaks as incentives to companies to invest in the country.

Bason explained that the reason that no CT was paid in Zambia for the last couple of years was “because of our £150m investment building the biggest sugar mill in the country.

“There are capital allowances available on that, in the same way similar reliefs are available to investors in most countries, including the UK,” he said.

The capital allowances are expected to continue for up to another five years, at which point the company will return to paying Zambia’s 10% CT rate.

Tax campaigner Richard Murphy said in his blog: “Of course no one is saying anyone is doing anything illegal. And ABF say it’s all down to allowances they legally enjoy.

“But, how come the allowances they legally enjoy mean that no tax is paid. It comes back to that question of who writes the rules. That comes back to Margaret Hodge asking the Big 4 why they have undue influence, an influence that means poor people lose out around the world.”

ABF has since claimed that the ActionAid report is an attempt to “use Zambia Sugar’s tax affairs to gain publicity at the expense of accuracy.”

Here’s the ActionAid video:

Replies (4)

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By Ken of Chester le Street
13th Feb 2013 17:45

Not so sweet

 

Tax campaigner Richard Murphy said in his blog: “Of course no one is saying anyone is doing anything illegal. And ABF say it’s all down to allowances they legally enjoy.

“But, how come the allowances they legally enjoy mean that no tax is paid?"

I haven't read this gentleman's blog, and perhaps I am being unfair, but prima facie he hasn't understood how tax allowances work. Capital allowances exist so that businesses can write off the cost of plant against profit, and so only pay tax on the true profit- plant depreciates, and the true profit is less than the profit before depreciation.  Depreciation is not allowable, for historic reasaons and CA's are there to compensate for this. If the profit is less than the capital allowances of course there is going to be no tax. This is no more avoidance than claiming personal allowance is avoidance. I legally enjoy age allowance- I love it, can't get enough of it in fact! But I don't pay tax.

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By mewsans
13th Feb 2013 18:21

Not so Sweet

You can be certain that Richard Murphy knows exactly what he is saying and fully understands the rules!

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By markfd
14th Feb 2013 09:04

Clearly not...

...as he doesn't appear to be aware capital allowances are a perfectly legitimate one to claim, presumably the goverment of the country in question had some role in framing their tax law.

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By annualpanic
18th Feb 2013 14:48

Charities should not be deciding who pays what taxes

Such self-righteous outbursts are not to go unquestioned merely because they carry the authority of a charity (a charity of tax experts?).

Illegally dodging taxes is tax evasion. Tax avoidance is within the law but the phrase is being and abused by the media, to the point where most members of the public seem to have no idea that there was ever a distinction.

If Zambia, the UK or any other jurisdiction has a problem with how their tax law works, they could debate it properly, or they could allow shrill voices to sway them without proper thought for the consequences.

The decision by Starbucks recently to volunteer to pay arbitrary amounts of extra tax, was of course borne of self-interest, but could lead to uncertainty and is itself a threat to "fairness".

 

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