Press release FITA 7 June 2019

Press release – FITA – for immediate release

We wish to alert new Commissioner of the South African Revenue Service (“SARS”), Edward Kieswetter, to the growing pressure in a number of African countries to hold multinational cigarette manufacturers, and in particular British American Tobacco (“BAT”), to account in relation to their base erosion and profit shifting schemes, which schemes rob the fiscus of a number of developing countries of billions.

A recent study by the Tax Justice Network (“TJN”),which focused on BAT’s operations in Bangladesh, Brazil, Indonesia, Trinidad and Tobago, Kenya, Uganda, and Zambia, found that for every dollar the cigarette multinational pay in tax in the countries it operates in, it shifts more than half a dollar that would have been taxed locally to a UK subsidiary where it paid almost no tax.

This, according to the study, is done by charging itself royalties, rerouting loans through tax havens and paying interest fees on loans made between regional offices, shrinking tax contributions, especially in low and middle-income countries.

It is estimated that BAT repatriated income equivalent to over 12 per cent of its pre-tax profits to its mother firm in the UK where it paid no corporate income tax in 2016.

The study reveals that the UK-based BAT Holdings Ltd was paid $400 million (R 6 billion) in royalties, $278 million (R 4 billion) in IT recharges and $263 million (R 3.9 billion) in technical and advisory fees by other subsidiaries from across the world in 2016.

‘’At a total of $941 million (R 14 billion), 12.3 per cent of BAT’s 2016 pre-tax profit of $7682 million (R 114 billion) was shifted to a single subsidiary to avoid paying corporate income tax,’’ the report shows.

In Kenya, BAT Kenya listed on the Nairobi Securities Exchange, is said to have shifted $26.5 million (R 395 million) of dividends to the Netherlands in 2015 and 2016, denying the Kenya Revenue Authority (“KRA”) tax worth $2.7 million (R 40 million).

The report dubbed ‘Ashes to Ashes-how British American Tobacco avoid taxes in low and middle-income countries’ further claims that BAT has over 100 offshore subsidiaries spread across 19 tax havens where it spends billions of Rands each year as ‘other operating charges’.

Kenya Tobacco Control Alliance (“KETCA”) wrote to the Kenyan government urging it to initiate an investigation into the alleged tax scam.

In a letter to National Treasury the lobby group questioned why BAT is resorting to tax avoidance at a time Kenya is struggling to meet its revenue collection targets. The same can be applied in the South African context when one considers the over R 2 billion BAT is alleged to owe the taxman, as well as the new allegations of close to another R 200 million BAT is said to owe SARS.

Tobacco Control advocates in Uganda led by Uganda Health Communication Alliance made a similar call to government to mount pressure on BAT to pay its taxes.

BAT is a serial offender and is currently being investigated for tax avoidance in South Africa, Brazil, South Korea, and the Netherlands, as well as being investigated for corruption in the UK, Romania, and Kenya. Their aforementioned conduct will see just the five countries which formed part of the TJN study lose at least R 11 billion in tax revenue by 2030. This is the very same entity then seeks to also position itself, together with a gang of other renowned and repeat tax offenders in their global operations, as a solution to tax compliance challenges facing SARS.

In line with what is happening in other African countries, we call upon SARS to ensure that the multinationals are held to account in as far as tax compliance is concerned.

We further urge new SARS Commissioner Edward Kieswetter to resist any form of undue influence from industry in as far as matters of compliance are concerned. In this regard we wish to voice our pleasure at the fact that SARS has finally heeded to our call that compliance in as far as industry is concerned is looked at holistically, and that all the compliance risks along the entire value chain are considered.

We accordingly welcome the proposed rule amendments by SARS in respect of tobacco leaf threshers, a step in the right direction in ensuring compliance from holistic point of view, and not the usual simplistic approach of limiting the focus to merely the illicit trade in cigarettes which the multinationals seek to direct SARS towards. We feel that the time where these multinationals have enjoyed a free ride by exerting their influence over government and its enforcement arms must now come to an end, and those tasked with policing industry must act free of any undue influence.

Issued by the Fair-trade Independent Tobacco Association: 7 June 2019

For queries kindly contact Monique Vogel t: 072 720 7919; e: Monique@fita.co.za

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