Yesterday’s Observer newspaper highlighted a shocking ActionAid report about the tax activities of Associated British Foods, a corporate giant with operations across the world. The report explains how ABF have managed to minimize the amount of tax they pay in Zambia, one of the world’s poorest countries, where they grow sugar under the name of Zambia Sugar, which is owned by Illovo Sugar, a member of the ABF group. Indeed, the report finds that “ABF’s Zambian subsidiary has, overall, paid less than 0.5% of its US$123 million pre-tax profits in corporate income tax,” even though the corporate tax rate in Zambia is actually 35%.
The role Ireland plays in all this is a disgrace. In stark contrast to the ‘development’ relationship between Ireland and Zambia (one in which Irish Aid provided €16.3m in development aid to Zambia in 2011 alone), Ireland thoroughly undermines Zambia’s tax-raising powers, to the tune of about US$17.7 million since 2007. For example, ABF has paid management fees to an Irish company that employs no-one here; it has exploited a lop-sided tax treaty between Ireland and Zambia to minimize tax it pays to the Zambian exchequer on interest on loans it took out; and it has taken advantage of tax treaty loopholes to shuffle profits via some of its subsidiaries, including in Ireland. Thus, as the report makes absolutely clear, ABF’s tax activities have been helped along by Ireland (including the tax treaty with Zambia and the ‘light tough regulation’ that oversees activities in the International Financial Services Centre). To their credit, ActionAid don’t mess about when it comes to noting the hypocrisy:
“Not only does this tend to nakedly boost Irish revenues at the expense of Zambia – ironically for a country which is one of Ireland’s nine long-term development partners – but it also allows multinational companies to ‘treaty shop’, as we have seen, using Ireland as a tax-free conduit for transactions between Zambia and other countries. While Ireland gives aid to the Zambian government with one hand, Zambian government revenues flow out again thanks to its Irish tax treaty” (p.24).
Given all this, the report recommends that: “Ireland should urgently either renegotiate or cancel its bilateral tax treaty with Zambia, to allow Zambia to levy the tax rates it chooses on payments of royalties, dividends, interest and service fees from Zambian to Irish companies” (p.36). I completely agree. But more also needs to be done. This issue isn’t just about Ireland’s tax treaty with Zambia. As Colm Keena reported in the Irish Times in NovemberIreland’s place in the world helps other giants minimize their taxes, including Microsoft. He writes, “The Irish centre is responsible for retail sales in Europe, the Middle East and Africa. Because Microsoft Ireland Research has the right to sell Microsoft products in that geographical zone, profits on the sales of Microsoft products in that vast portion of the globe end up in 70 Sir John Rogerson’s Quay.” This sort of arrangement is great news for Microsoft shareholders: its Irish subsidiaries helped reduce the company’s 2011 US tax bill by $2.43 billion (€1.87 billion). But it absolutely stinks. As Keena says: “Seen from the perspective of Africans, it must be very rum indeed to see profits from sales in their countries being taxed in Dublin, to fund a society a million miles away from theirs in terms of development.” Thus, not only should Ireland renegotiate or cancel its tax treaty with Zambia, the government should also make a commitment to ending our involvement in this sort of tax evasion.
The even bigger story here is about what sort of post-crisis Ireland we want to see. Is scamming the neighbours – near or far – a good development strategy? Of course, we don’t want to have this image of ourselves. We’d probably all prefer to think of our country as climbing the development ladder by engaging in a race to the top, for example by attracting investment from the likes of Google and Facebook. Yet, what the ActionAid report highlights is the extent to which we’re also still very much engaged in a ‘race to the bottom’. By undercutting tax rates, undermining tax revenue regimes, and underpinning the tax evasion strategies of some of the world’s richest companies, we’re putting pressure on countries such as Zambia to reduce their corporate tax rates down to the Irish floor.
Maybe we’d prefer to celebrate our potential as a small country that can make a big difference. Indeed, just such a claim was made by Tom Arnold and Jamie Drummond in last week’s Irish Times, when they noted how Ireland, “can make a disproportionate impact at international level. Due to our 19th-century history of famine, we have a unique legitimacy in making hunger a priority of our foreign policy in the 21st century.” I’m sure Ireland can do a lot to help the fight to eradicate hunger while it has the EU presidency and then again at the G8 meeting in Fermanagh in June. But as the story about ABF’s activities in Zambia highlights, Ireland must recognize that its role in the eradication (or, indeed, the production) of hunger is absolutely also about how it facilitates tax evasion. Appallingly, Ireland is undermining the ability of foreign, often much poorer governments to address the sorts of inequalities that generate a prevalence rate of undernourishment in Zambia of 47.4% in 2011. This has to stop.
Alistair Fraser
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Progressive Economy
Ireland after NAMA 
February 11, 2013
Ireland and tax evasion
Posted by irelandafternama under #Commentaries | Tags: ABF, ActionAid, Ireland |[3] Comments
Yesterday’s Observer newspaper highlighted a shocking ActionAid report about the tax activities of Associated British Foods, a corporate giant with operations across the world. The report explains how ABF have managed to minimize the amount of tax they pay in Zambia, one of the world’s poorest countries, where they grow sugar under the name of Zambia Sugar, which is owned by Illovo Sugar, a member of the ABF group. Indeed, the report finds that “ABF’s Zambian subsidiary has, overall, paid less than 0.5% of its US$123 million pre-tax profits in corporate income tax,” even though the corporate tax rate in Zambia is actually 35%.
The role Ireland plays in all this is a disgrace. In stark contrast to the ‘development’ relationship between Ireland and Zambia (one in which Irish Aid provided €16.3m in development aid to Zambia in 2011 alone), Ireland thoroughly undermines Zambia’s tax-raising powers, to the tune of about US$17.7 million since 2007. For example, ABF has paid management fees to an Irish company that employs no-one here; it has exploited a lop-sided tax treaty between Ireland and Zambia to minimize tax it pays to the Zambian exchequer on interest on loans it took out; and it has taken advantage of tax treaty loopholes to shuffle profits via some of its subsidiaries, including in Ireland. Thus, as the report makes absolutely clear, ABF’s tax activities have been helped along by Ireland (including the tax treaty with Zambia and the ‘light tough regulation’ that oversees activities in the International Financial Services Centre). To their credit, ActionAid don’t mess about when it comes to noting the hypocrisy:
“Not only does this tend to nakedly boost Irish revenues at the expense of Zambia – ironically for a country which is one of Ireland’s nine long-term development partners – but it also allows multinational companies to ‘treaty shop’, as we have seen, using Ireland as a tax-free conduit for transactions between Zambia and other countries. While Ireland gives aid to the Zambian government with one hand, Zambian government revenues flow out again thanks to its Irish tax treaty” (p.24).
Given all this, the report recommends that: “Ireland should urgently either renegotiate or cancel its bilateral tax treaty with Zambia, to allow Zambia to levy the tax rates it chooses on payments of royalties, dividends, interest and service fees from Zambian to Irish companies” (p.36). I completely agree. But more also needs to be done. This issue isn’t just about Ireland’s tax treaty with Zambia. As Colm Keena reported in the Irish Times in NovemberIreland’s place in the world helps other giants minimize their taxes, including Microsoft. He writes, “The Irish centre is responsible for retail sales in Europe, the Middle East and Africa. Because Microsoft Ireland Research has the right to sell Microsoft products in that geographical zone, profits on the sales of Microsoft products in that vast portion of the globe end up in 70 Sir John Rogerson’s Quay.” This sort of arrangement is great news for Microsoft shareholders: its Irish subsidiaries helped reduce the company’s 2011 US tax bill by $2.43 billion (€1.87 billion). But it absolutely stinks. As Keena says: “Seen from the perspective of Africans, it must be very rum indeed to see profits from sales in their countries being taxed in Dublin, to fund a society a million miles away from theirs in terms of development.” Thus, not only should Ireland renegotiate or cancel its tax treaty with Zambia, the government should also make a commitment to ending our involvement in this sort of tax evasion.
The even bigger story here is about what sort of post-crisis Ireland we want to see. Is scamming the neighbours – near or far – a good development strategy? Of course, we don’t want to have this image of ourselves. We’d probably all prefer to think of our country as climbing the development ladder by engaging in a race to the top, for example by attracting investment from the likes of Google and Facebook. Yet, what the ActionAid report highlights is the extent to which we’re also still very much engaged in a ‘race to the bottom’. By undercutting tax rates, undermining tax revenue regimes, and underpinning the tax evasion strategies of some of the world’s richest companies, we’re putting pressure on countries such as Zambia to reduce their corporate tax rates down to the Irish floor.
Maybe we’d prefer to celebrate our potential as a small country that can make a big difference. Indeed, just such a claim was made by Tom Arnold and Jamie Drummond in last week’s Irish Times, when they noted how Ireland, “can make a disproportionate impact at international level. Due to our 19th-century history of famine, we have a unique legitimacy in making hunger a priority of our foreign policy in the 21st century.” I’m sure Ireland can do a lot to help the fight to eradicate hunger while it has the EU presidency and then again at the G8 meeting in Fermanagh in June. But as the story about ABF’s activities in Zambia highlights, Ireland must recognize that its role in the eradication (or, indeed, the production) of hunger is absolutely also about how it facilitates tax evasion. Appallingly, Ireland is undermining the ability of foreign, often much poorer governments to address the sorts of inequalities that generate a prevalence rate of undernourishment in Zambia of 47.4% in 2011. This has to stop.
Alistair Fraser
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