The London-based charity ActionAid has accused the world’s second largest brewer, SABMiller, of using transfer pricing to avoid paying taxes in many countries including Mozambique. According to ActionAid, the Mozambican state could be losing up to 11 million meticais (about 311,000 US dollars, at current exchange rates) per year from these accounting practices.In its report, “Calling Time, why SABMiller should stop dodging taxes in Africa”, ActionAid calculates that SABMiller may be avoiding up to 20 million pounds sterling (31 million US dollars) in tax a year in Africa and India by shifting funds through sister companies based in tax havens.ActionAid makes clear that it is not accusing the brewer of breaking the law. It states that “the lucrative search for ways to pay less, creating complex corporate structures, routing money through opaque tax havens, and employing highly paid professionals to find loopholes, is legal: indeed, it is so common it is accepted as the normal way of doing business. And it gives multinational companies a distinct advantage over their local competitors”.However, ActionAid points out that “there are signs that the tide is turning against tax dodging in developing countries. South Africa’s finance minister has described ‘aggressive tax avoidance’ as ‘a serious cancer eating into the fiscal base of many countries’”.In Mozambique SABMiller is the majority shareholder in Cervejas de Mocambique (CDM – Beers of Mozambique) which has three breweries, in Maputo, Beira and Nampula. ActionAid has looked at its Annual Report for 2009 and has spotted the accounting practices that the SABMiller group uses in many African countries which have the effect of apparently reducing the local subsidiary’s profit and its local tax liability.In its Annual Report, CDM states that it has a contract for “a management agreement with Bevman Services AG for the provision of management services to the Company. An amount of 54,182,554 meticais has been included in costs in respect of these transactions”.The ActionAid report’s author, Martin Hearson, told AIM that by making payments to Bevman, a sister company based in Switzerland, SABMiller avoided paying 6,501,906 meticais to the Mozambican treasury.ActionAid also highlights SABMiller’s practice of registering some of its brands in Holland where royalty payments are taxed at a very low rate. Its subsidiaries in Africa thus have to make royalty payments to the Dutch based SABMiller International BV for the use of brands such as Castle, which are also brewed in Mozambique.The CDM Annual Report refers to a contract for “a licence and distribution agreement with SABMiller International BV for the brewing and/or distribution of beer products other than 2M, Manica and Laurentina (the three Mozambican brands). An amount of 38,339,082 meticais has been included in costs in respect of these transactions”.According to Hearson’s calculations this resulted in an estimated tax revenue loss of 4,600,689 meticais.In total, these two contracts could have resulted in SABMiller reducing its Mozambican tax bill in 2009 by over 11 million meticais.Other funds may also be being shifted away from the Mozambican treasury.CDM’s 2009 Annual Report shows an inter-group payment to a Mauritian company called MUBEX of 170 million meticais, although it is not clear whether any raw materials or plant and equipment were actually sourced in Mauritius.However, the use of MUBEX is highlighted by ActionAid in its report, using purchases by Accra Brewery (a subsidiary of SABMiller) from SABMiller in South Africa as an example, asking:“How would you ship goods from South Africa to Ghana? Ask a school geography student and you would hope to be told to turn right from the Cape and head up Africa’s west coast. Ask a tax planner and he would tell you to make sure you send the paperwork in the opposite direction. In this third type of dodge, goods are procured by Accra Brewery from another SABMiller subsidiary in Mauritius, 7,000km away in the Indian Ocean. “Sensible commercial reasons – including economies of scale and the management of currency and commodity price risks – lie behind the centralisation of SABMiller’s purchasing across Africa. And unsurprisingly for a group with its origins and regional hub in South Africa, for a long time this was done using a South African company, SABEX. Then in 2008 the group created a new company called MUBEX, located 3,000km from SABMiller’s Johannesburg regional office, in Mauritius. Tax – and specifically Mauritius’ maximum effective tax rate for a ‘global business’ company of 3 per cent – must surely have been one reason for locating the operation there”.In a statement SABMiller strongly rejected the allegations made by ActionAid in its report and said that “SABMiller does not engage in aggressive tax planning in any part of its operations, and the report includes a number of flawed and inaccurate assumptions”. It continued “compliance with tax laws underpins all of our corporate governance practices. We actively engage with revenue authorities and we are open and transparent with our affairs. We follow all transfer pricing regulations within the countries in which we operate and the principles of the OECD guidelines”.
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