Associated British Foods (ABF) is embroiled in a tax dodging row with the charity ActionAid over its sugar-producing subsidiary in Zambia.
According to a report published by the charity, Zambia Sugar – owned by ABF subsidiary Illovo – paid virtually no corporation tax in the country between 2007 and 2012, despite recently posting record profits.
ABF – whose brands include Kingsmill, Twinings and Silver Spoon – claimed “capital allowances” on a £150M investment to double production in the country resulted in corporate tax being legitimately waived.
However, Chris Jordan, a tax expert 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.”
The report also alleged there are several other financial transactions that reduced Zambia Sugar’s taxable profits in the country, while others managed to bypass other Zambian taxes that are ordinarily levied on foreign payments.
It also highlighted annual $2.6M payments to an Irish sister company with “no employees” – something ABF said was an accounting error.
In a statement, ABF said it had responded in a “transparent and detailed manner” to ActionAid. Despite this the charity had “produced a report written in inflammatory language that is designed to mislead”, it said.
The firm added: “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 very proud of Zambia Sugar and the major contribution that 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.”
The statement also asserted there was no attempt to artificially reduce profits in Zambia.
“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,” said the firm.
“These payments are made to overseas companies, largely for historical reasons, and are not driven by tax considerations. ActionAid could not be more mistaken.”