African Tax Treaty Aims To Combat Corporate Evasion

African Tax Treaty Aims To Combat Corporate Evasion

Inspired by South African Breweries beermaker SABMiller, a tax treaty is expected to be ratified by 21 African countries this year that could become a global model for combating corporate tax evasion, according to a report in Independent Online.

The African Agreement on Mutual Assistance on Tax Matters originated at a 2011 meeting of African Tax Administration Forum members to discuss tax avoidance issues raised in a report on SABMiller by ActionAid, an international development agency, the report says.

The treaty, if approved, will allow countries to work together to investigate tax affairs of multinationals across Africa.

“Nothing like this has ever been done anywhere before,” said Logan Wort, executive secretary of the African Tax Administration Forum.

In September, the Organisation for Economic Co-operation and Development plans to  launch a project, “Tax inspectors without borders,” in the hopes of challenging aggressive tax management that results in the erosion of the tax base of countries across the globe, particularly in developing countries, according to Independent Online.

This effort is born out of increasing public frustration about tax avoidance by powerful multinationals, the report said.

The key focus of the report was one of SABMiller’s principal subsidiaries based in the Netherlands.

Although it has limited operations in the Netherlands, SABMiller’s latest annual report says it has 11 subsidiaries incorporated there, the Independent Online report said. The multinational beer group has 82 principal subsidiaries around the world from the U.K. to El Salvador and Italy to Kenya.

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The principal activity of most of these subsidiary companies is described as brewing but only one of the Netherlands-based companies – Grolsche Bierbrouwerij – has brewing as its principal activity, the report says. Nine of the other subsidiaries were described as holding companies and the 11th, SABMiller International BV, was described as a “trademark owner.”

The ActionAid report accused SABMiller of using SABMiller International BV to deprive African countries of substantial tax income through aggressive tax management policies.

The report questioned why trademarks for many of SABMiller’s iconic African beers  including Castle were registered and owned 5,592 miles away in Rotterdam.

The report alleged that SABMiller was shifting profit from its subsidiaries in developing countries to places where income was subject to a lower tax rate. This was done through  royalties, management fees, procurement fees for purchase of raw materials and interest payments.

SABMiller said its tax practices are appropriate and compliant, according to Independent Online.

The 2011 meeting to discuss the ActionAid report looked at establishing a legal framework that would allow the countries to take collective action on tax issues.

In June, the Amsterdam-based Centre for Research on Multinational Corporations issued a report highlighting the adverse affects of double-taxation agreements between the Netherlands and developing countries and recommended that developing countries consider the impact of these agreements.