DemToCo avoided over $200M in taxes annually from Guyana- watchdog body-local economic costs for smoking tagged at US$15M

May 07, 2019 News

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A key report by a watchdog body has named Guyana as one of the countries where British American Tobacco (BAT), the parent company of Demerara Tobacco Company (DemToCo), was operating a system where millions of dollars were lost because of tax avoidance.
According to the report, Ashes to Ashes: How British American Tobacco Avoid Taxes In Low and Middle Income Countries, released recently, for the period of 2009-2012, Guyana lost taxes of about $200M annually.
The analysis by Tax Justice Network, as published in the report, said that the giant multinational shifted more than half a dollar that would have been taxed locally to a UK subsidiary where BAT paid almost no tax.
Tax Justice Network estimates Guyana, Bangladesh, Indonesia, Kenya, Brazil and Trinidad and Tobago together stand to lose a total of nearly US$700 million in tax revenue by 2030 from the financial manoeuvring of just one tobacco company, if business continues as usual.
According to the report, BAT used payments disguised as royalties, fees and IT charges, to avoid paying around US$3.4M ($680M) between 2009-2012.
The watchdog body noted that the countries that it looked at also included Kenya, Trinidad and Tobago, Brazil, Indonesia and Bangladesh.
In total, BAT avoided paying US$58.2M between 2007 and 2016.
The Tax Justice Network also examined the cost of cigarettes on health and loss of productivity- what they said was the estimated economic cost of smoking- including health and low productivity costs due to early mortality and morbidity.
In Guyana, 17.4 percent of men were using tobacco daily.
The percentage of women over 15 years using tobacco daily was 2.3.
The percentage of death caused by tobacco in men is 11.4 percent as against 4.7 percent for women.
However, the worrying part, according to the report, is the estimated economic cost of smoking. It is US$15M.
Slap on Wrist
The report would be pertinent, especially from a tax avoidance perspective, as there is a huge debate ongoing over the issue of taxes in Guyana.
Local companies are complaining bitterly that they are being made to pay dear while foreign companies are given a slap on the wrist.
In a report published on the heels of BAT’s annual shareholder meeting in London, the Tax Justice Network revealed a range of mechanisms used by the tobacco company in 2016 to shift income equivalent to over 12 per cent ($941 million) of its pre-tax profits to B

AT Holdings Ltd, a UK-based subsidiary where BAT paid almost no corporate income tax.
By charging itself royalties, rerouting loans through tax havens and paying interests fees on loans made between regional offices, BAT shrunk its tax contributions in low and middle income countries where public funding is high in need and short in availability, according to the Tax Justice report.
“However, this picture remains incomplete: BAT has over one hundred offshore subsidiaries spread across 19 tax havens and books hundreds of millions of dollars each year to ‘other operating charges’ without further explanation.”
The profit shifting practices fly in the face of tobacco companies’ claims to be essential tax providers to low and middle income countries where 80 per cent of the 1.1 billion smokers worldwide live.
The health damage
For every dollar Bangladesh raised in income tax from BAT in 2016, BAT shifted 22 cents out of the local economy into the UK while smoking cost Bangladesh $24 in economic damage.
Alex Cobham, chief executive at the Tax Justice Network, said: “Tobacco companies make a lot of noise about paying tax, but the nearly $1 billion that British American Tobacco shifted out of developing countries in a single year into one UK office – and the life-changing tax it avoided on that profit – tells a very different story.
“Cigarettes not only impose massive human costs. Those who profit from them are actively depriving lower-income countries of the public funding they need to provide people with health services.
“At a minimum, Governments must require tobacco companies to publish country by country reporting to make sure profits are taxed in the communities where they were raised, not in the tax havens they were syphoned off to.”
In Bangladesh, from 2014 to 2016, BAT Bangladesh Company Limited declared US$21 million a year in obligations owed to BAT’s UK subsidiaries in royalties, technical and advisory fees and IT charge – equivalent to 15 per cent of BAT Bangladesh’s pre-tax profits over the three years. The payments allowed BAT Bangladesh to avoid paying the corporate tax rate on the US$21 million it shifted into the UK and instead pay much lower withholding tax rates, costing Bangladesh $5.8 million in lost tax in 2016 – enough to cover the Bangladesh government’s per capita health expenditures for over 170,000 citizens for a year.
By utilising intracompany loan interest payments and shifting profits from Brazil to the Portuguese tax haven Madeira, BAT’s Brazilian operation Souza Cruz reduced its tax contributions in Brazil by a total of $128 million between 2007 and 2014 – enough to cover the Brazil’s government’s per capita health expenditures for over 98,000 citizens for a year.
The annual economic cost of smoking in Brazil is US$19.7 billion where 19 per cent of men over the age of 15 smoke daily and 12 per cent of deaths among men is caused by tobacco.
The annual economic cost of smoking in Indonesia is $42 billion where 76 per cent of men over the age of 15 smoke daily and 21 per cent of deaths among men is caused by tobacco.
British American Tobacco responded to the Tax Justice Network’s report saying:
“The Group fully complies with all applicable tax legislation where it does business, operates the transactions that occur between Group companies on an arm’s length basis and is a significant tax contributor to Governments worldwide. Classifying countries such as the Netherlands and the UK as tax havens is simply not a credible claim… the tax loss of $58.9m identified by the report simply does not arise.
BAT is currently being investigated for tax avoidance in Brazil, South Korea, South Africa and the Netherlands.BAT is also being investigated for corruption in the UK14, Romania15 and Kenya.
Among other highlights of the report, were that over the various periods examined, it was found that the UK-based BAT Holdings Ltd was paid US$400M in royalties, US$278M in IT recharges and US$263M in technical and advisory fees by other BAT subsidiaries from across the world in 2016.
At a total of US$941 million, 12.3 per cent of BAT’s 2016 pre-tax profit of $7682 million was shifted to a single subsidiary where BAT paid almost no corporate income tax.
Kaieteur News has asked DemToCo’s local reps for a statement since last week. However, up to press time, there was none issued.
DemToCo, on behalf of BAT, distributes the Bristol and Pall Mall brands of cigarettes.

 

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