BAT accused of Tax Fraud in three African Countries including Kenya

By Soko Directory Team / Published June 3, 2019 | 10:07 am



Tobacco BAT Kenya

By Sharon Chweya

In 2015 and 2016, the Kenya revenue authority may have received US$2.7 million less in revenue per year, due to BAT’s routing of dividend payments via the Netherlands.

In a report published on the heels of BAT’s annual shareholder meeting in London, the Tax Justice Network (TJN) has revealed a range of mechanisms used by the tobacco company in 2016 to shift income equivalent to over 12 percent ($941 million) of its pre-tax profits to BAT Holdings Ltd, a UK-based subsidiary where BAT paid almost no corporate income tax.

BAT is accused of tax fraud by charging itself royalties, rerouting loans through tax havens and paying interests fees on loans made between regional offices, as company shrunk its tax contributions in low and middle-income countries where public funding is high in need and short in availability.

The profits shifting practices fly in the face of tobacco companies’ claims to be essential tax providers to low and middle-income countries where 80 percent of the 1.1 billion smokers worldwide live.

The fraud study majored on BAT’s operations in Bangladesh, Brazil, Indonesia, Trinidad and Tobago, Kenya, Uganda, and Zambia.

In Kenya, the economic cost of smoking is estimated at 2.9 billion shillings where the TJN reports show that BAT shifted 2.65 billion shillings of dividends to the Netherlands in 2015 and 2016, denying Kenya tax worth 270 million shillings.

BAT Kenya is 60 percent owned by a Dutch subsidiary of the BAT group called Molensteegh Invest BV.152. In the two years, 2015 and 2016, US$53 million – 60 percent of BAT Kenya’s dividends – would have been paid to the Dutch company, an average of US$26.5 million a year.

Since BAT is a UK company it would be expected that the dividends would be paid to the UK. The corporate tax would have also been paid before the dividends left Kenya.

Since 2015 there has been a Netherlands-Kenya tax treaty which reduces withholding tax on dividends to zero. The withholding tax due according to the decades-old UK-Kenya treaty is not clear, as the rate applies only if dividends are taxed in the UK, which foreign dividends no longer are.

The Kenyan domestic rate of withholding tax on dividends is 10 percent for non-residents outside the East Africa Community and this rate is as well mentioned in the BAT Kenya 2016 annual report.

The report dubbed “Ashes to Ashes – how British American Tobacco avoid taxes in low and middle – income countries” further indicates that the 10 percent withholding tax had not been paid. The Kenya-Netherlands treaty reduces this to zero, so the tax loss to Kenya would be estimated at US$2.7 million a year. However, BAT says, according to its sources, the treaty does not yet apply. The arrangement cannot be originally motivated by this tax saving, because Molensteegh Invest BV has held BAT’s shares in Kenya since at least 2005 – before the treaty was signed – and before 2015, when the dividend payments to the Dutch Company were presumably subject to the 10 percent withholding tax.

It is possible to speculate that the dividends may originally have been paid via the Netherlands, where they are not taxed, in order to avoid paying them to the UK which up until 2009 did tax foreign dividends. It is forecasted that the tax fraud will see five African countries including Kenya lose $718 million in tax revenue by 2030.

BAT is currently being investigated for tax avoidance in Brazil, South Korea, South Africa, and the Netherlands as well as being investigated for corruption in the UK, Romania, and Kenya.





About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

View other posts by Soko Directory Team


More Articles From This Author






Trending Stories










Other Related Articles










SOKO DIRECTORY & FINANCIAL GUIDE



ARCHIVES

2021
  • January 2021 (182)
  • February 2021 (227)
  • March 2021 (325)
  • April 2021 (78)
  • 2020
  • January 2020 (272)
  • February 2020 (310)
  • March 2020 (390)
  • April 2020 (321)
  • May 2020 (335)
  • June 2020 (327)
  • July 2020 (334)
  • August 2020 (276)
  • September 2020 (214)
  • October 2020 (233)
  • November 2020 (242)
  • December 2020 (187)
  • 2019
  • January 2019 (253)
  • February 2019 (216)
  • March 2019 (285)
  • April 2019 (254)
  • May 2019 (272)
  • June 2019 (251)
  • July 2019 (338)
  • August 2019 (293)
  • September 2019 (306)
  • October 2019 (313)
  • November 2019 (362)
  • December 2019 (319)
  • 2018
  • January 2018 (291)
  • February 2018 (213)
  • March 2018 (278)
  • April 2018 (225)
  • May 2018 (237)
  • June 2018 (178)
  • July 2018 (256)
  • August 2018 (249)
  • September 2018 (256)
  • October 2018 (287)
  • November 2018 (284)
  • December 2018 (186)
  • 2017
  • January 2017 (183)
  • February 2017 (194)
  • March 2017 (207)
  • April 2017 (104)
  • May 2017 (169)
  • June 2017 (205)
  • July 2017 (190)
  • August 2017 (195)
  • September 2017 (186)
  • October 2017 (235)
  • November 2017 (253)
  • December 2017 (266)
  • 2016
  • January 2016 (165)
  • February 2016 (165)
  • March 2016 (190)
  • April 2016 (143)
  • May 2016 (245)
  • June 2016 (182)
  • July 2016 (271)
  • August 2016 (248)
  • September 2016 (234)
  • October 2016 (191)
  • November 2016 (243)
  • December 2016 (153)
  • 2015
  • January 2015 (1)
  • February 2015 (4)
  • March 2015 (166)
  • April 2015 (108)
  • May 2015 (116)
  • June 2015 (120)
  • July 2015 (148)
  • August 2015 (157)
  • September 2015 (188)
  • October 2015 (169)
  • November 2015 (173)
  • December 2015 (207)
  • 2014
  • March 2014 (2)
  • 2013
  • March 2013 (10)
  • June 2013 (1)
  • 2012
  • March 2012 (7)
  • April 2012 (15)
  • May 2012 (1)
  • July 2012 (1)
  • August 2012 (4)
  • October 2012 (2)
  • November 2012 (2)
  • December 2012 (1)
  • 2011
    2010
    2009
    2008
    2007
    2006
    2005
    2004
    2003
    2002
    2001
    2000
    1999
    1998
    1997
    1996
    1995
    1994
    1993
    1992
    1991
    1990
    1989
    1988
    1987
    1986
    1985
    1984
    1983
    1982
    1981
    1980
    1979
    1978
    1977
    1976
    1975
    1974
    1973
    1972
    1971
    1970
    1969
    1968
    1967
    1966
    1965
    1964
    1963
    1962
    1961
    1960
    1959
    1958
    1957
    1956
    1955
    1954
    1953
    1952
    1951
    1950