Associated British Foods accused of Zambia tax avoidance

Zambia Sugar

One of Britain’s biggest multinationals, whose brands include Silver Spoon sugar, Twinings Tea and Kingsmill bread, is avoiding paying millions of pounds of tax in an African state blighted by malnutrition, a year-long investigation revealed on Sunday.

Link to video: Sugar manufacturer Associated British Foods avoids paying corporate tax in Zambia

The Zambian sugar-producing subsidiary of Associated British Foods, a FTSE100 company, contributed virtually no corporation tax to the state’s exchequer between 2007 and 2012, and none at all for two of those years.

The firm, Zambia Sugar, has recently posted record pre-tax profits and its huge plantation is increasing its capacity to produce more sugar for markets in Europe and Africa. Yet it paid less than 0.5% of its $123m pre-tax profits in corporation tax between 2007 and 2012.

The company benefits from generous capital allowance and tax-relief schemes in Zambia, but the investigation also found that it funnels around a third of its pre-tax profits to sister companies in tax havens, including Ireland, Mauritius and the Netherlands. Tax treaties between Zambia and some of those countries mean the state’s revenue authorities are unable to charge their normal tax on money leaving their shores.

The revelations are contained in a report published by ActionAid, which exposes how Zambia Sugar has kept its contribution to the state’s exchequer so low, although the company says that globally it actually pays a higher rate of tax on its profits than it otherwise would due to its corporate structure.

It is estimated that the tax haven transactions of this one British headquartered multinational deprived Zambia of a sum 14 times larger than the UK aid provided to the country to combat hunger and food insecurity.

ActionAid’s findings will heap more pressure on the chancellor, George Osborne, to make progress in closing gaps in international tax standards and tackling avoidance at the G20 meeting of world leaders this week and the G8 in June.

The total loss to tax avoidance by multinationals in the developing world is estimated to be around £70bn a year, enough to save the lives of 85,000 children under the age of five in the world’s poorest countries every 12 months, campaigners say.

The deputy prime minister, Nick Clegg, who will visit Africa this week, said on Thursday that tackling those “gaming the system, seeking to play us all for fools” will be a priority for the UK government when it chairs the G8.

Link to video: ActionAid explain how they exposed tax avoidance by a British company in Zambia

But Ivan Lewis MP, the shadow international development secretary, said rhetoric needed to be matched by action. “ActionAid’s report underlines the urgent need for David Cameron and George Osborne to match their tough talk on tax avoidance with meaningful action.”

Sir Malcolm Bruce, chair of the cross-party Commons select committee on international development, said: “I would like to think Associated British Foods’ board will now say, ‘Are we really being fair to the Zambians?'”

Lord Oakeshott, the Liberal Democrat peer and a former economist for the Kenyan ministry of finance, said: “We must start by changing the law here, so big businesses like ABF must show the tax they actually pay in each country where they operate, and explain fully in each case why it is so far below the headline corporation or profits tax rate.”

Zambia Sugar admits it has paid “virtually nothing in corporation tax” in recent years due to capital allowances and reliefs granted to it by the Zambian tax authorities to finance its expansion, including one obtained by taking the Zambian government to court.

ActionAid’s report reveals, however, the existence of an additional array of transactions that reduce Zambia Sugar’s taxable profits in the African state, while the structure of others avoids Zambian taxes that are ordinarily levied on foreign payments.

The report focuses, in particular, on annual $2.6m payments to an Irish sister company whose accounts have repeatedly stated that it has no employees. Associated British Foods says this is an accounting error, but even the latest accounts filed on the 28 January, after the firm was presented with ActionAid’s findings, repeat the allegedly erroneous statement.

Chris Jordan, a tax specialist at ActionAid and co-author of the report, said: “This is a really shocking case where the Associated British Foods group has gone to great lengths to ensure it pays virtually no corporation tax in a very poor country. Tax avoidance is not victimless financial engineering. In Zambia 45% of children are malnourished and two-thirds of the population live on less than $2 a day.”

A spokesman for ABF’s subsidiary company, Illovo, the immediate owner of Zambia Sugar, said: “We deny emphatically that Illovo is engaged in anything illegal, immoral or in any way designed to reduce the tax rightly payable to the Zambian government. We are proud of Zambia Sugar and the major contribution it makes to the Zambian economy.

“Since 2008 Illovo has invested £150m to double the production capacity in Zambia and so create the largest sugar mill in Africa. This mill and related activities provide employment for more than 5,000 people. Capital allowances on this investment have resulted in no corporate tax being payable since the investment was made.

“The availability of these allowances, used by governments all over the world, has nothing to do with tax avoidance. African governments should be as free as any other to attract investors.

“Payments made by Zambia Sugar for the services of third-party contractors, expatriate personnel in Zambia and export services provided by Illovo, are made at cost … there’s no artificial reduction in profit in Zambia Sugar.

“These payments are made to overseas companies, largely for historical reasons, and are not driven by tax considerations. ActionAid could not be more mistaken.”