How Do Multinationals Avoid Paying Tax?

Using a variety of legal but questionable or difficult-to-trace methods, multinational companies are often able to avoid tax on large parts of their business activities. Research by ActionAid into SABMiller (the world's second largest brewing company, and owner of Carlton and United Breweries in Australia) illustrates how so many companies are able to take money out of developing countries that should be available to reduce poverty and achieve sustainable human development.

SABMiller used four main methods to reduce their tax obligations in Ghana (and in other African countries in which they operate). For further details, please read ActionAid's Calling Time report, from which this case study is drawn.

  1. Royalty Removal - Many of the local beer brands produced and sold by Accra Brewery are actually owned by a company in the Netherlands, which receives royalties for use of the brands from SABMiller's African subsidiaries. A favourable tax deal negotiated with the Netherlands tax authorities means that SABMiller pays very little tax on royalties, allowing it to avoid paying tax of around $17 million each year to the African nations where it produces and sells the beer.

  2. Costly Management - Accra Brewery also pays management fees to a company in Switzerland, although ActionAid uncovered evidence that this company provides little or no management services. By increasing the operating costs and thereby reducing its reportable profits in Ghana, SABMiller reduces its tax bill. The Head of Ghana's Revenue Authority has said, "Management fees is an area that we know is being used widely (to avoid tax), and that's mainly because it's difficult to verify the reasonableness of the management fee."

  3. Trade Diversion - Accra Brewery's imports don't physically pass through Mauritius (a known tax haven), but the paperwork and profits for these imports does. Again, by reducing the amount of profit in Ghana (which would be taxed at 25%) and inflating the profit in Mauritius (where it would be taxed at only 3%), SABMiller avoids paying tax and contributing to Ghana's development.

  4. Clever Borrowing - Accra Brewery took a vastly inflated loan worth more than seven times its own capital from the same SABMiller subsidiary in Mauritius. By offsetting the interest payments against tax, SABMiller cheats Ghana of at least $100,000 in tax revenue.