New Report Shows How BAT avoids Corporate Taxes
The report finds that BAT has made extensive use of methods that shift its profits from one country to another, reducing the company’s overall corporate tax bill. These include royalty payments for use of brands and trademarks, as well as technical and management fees, from a subsidiary in one country to a related company in another country. For example, BAT Bangladesh makes payments of all three kinds to related companies in the UK. It is virtually impossible to tell whether these fees and payments reflect a fair market price. Other methods for shifting profits include intracompany loans, dividend payments across borders and centralized procurement. The result is that poorer countries get far less in corporate taxes from the companies than they need to pay for the healthcare needs of smokers who have been made ill.
There is no international regulation of corporate taxation, as such. Instead there are guidelines produced by the Organisation for Economic Co-operation and Development (OECD), which are voluntary but sometimes adopted into national law. Under the guidelines, transactions between companies which are part of the same overall multinational company should be priced as they would be on the open market – as if the parties to the transaction were unrelated to each other. This is known as the arm’s length principle. In practice, however, it presents major problems from the point of view of fair and properly localised corporate taxation: it is often not possible to identify suitable price comparators and the report shows that it enables companies to avoid tax. An alternative ‘unitary’ approach would mean that the profits of each multinational are assessed at a global level, rather than for the individual entities within the group. These profits can then be allocated for tax purposes to the various jurisdictions in which the multinational operates, in proportion to the share of economic activity taking place in each.
The report recommends three key reforms of the global corporate tax system, so that:
- Taxes on corporate profits should be paid in the country where the profits are made.
- Transactions between subsidiaries of a multinational company must be priced as they would be on the open market.
- Corporate accounts should be transparent and based on an internationally agreed accounting standard.
In BAT’s 2018 sustainability report, the company said: “Companies have a moral as well as a legal obligation to pay all taxes due, and to be transparent about what they pay.” Challenged by ASH at its AGM last week to live up to this commitment by publishing public country by country reports the company refused, saying it complied with its tax obligations in every market and saw no need to provide anything more than aggregate data.
Two of the four major transnational tobacco manufacturers (BAT and Imperial) are based in the UK. The global yearly death toll from tobacco use is currently 7 million and is expected to rise to around 10 million a year by 2030. The UK has a duty to work with governments in low and middle income countries to help make sure tobacco multinationals pay a fair tax bill in those countries for the extensive health damage they cause.
Tax Justice Network. Ashes to Ashes. 2019