British American Tobacco Accused of Costing Developing Countries $700 Million in Tax Funds Using Subsidiary

According to a report by the Guardian, British American Tobacco is being accused of attempting to evade over $700 million in taxes combined from Bangladesh, Indonesia, Kenya, Guyana, Brazil, Trinidad, and Tobago using a UK-based subsidiary to maneuver their profits.

British American Tobacco (BAT), based in London, is the largest tobacco company in the world. The Tax Justice Network reported that in 2016 alone BAT moved over $940 million in profit generated from overseas companies to BAT Holdings, the company’s UK subsidiary. Why? With BAT’s subsidiary based out of the UK, the company can enjoy a 19% tax fee which is significantly lower than in other countries. While this does not eliminate their taxes, it significantly reduces them.

Due to lenient tax laws, it appears that no illegal activity has occurred. However, in the report by the Tax Justice Network, it was quickly noted that BAT has been utilizing complex profit maneuvering to pull off its reduced tax fees. In total, the company appears to have over 100 offshore subsidiaries located in 19 known tax havens. The company’s finances also reveal a multitude of vague “operating charges”, interest fees, and royalties. In over 60-pages, the report by Tax Justice Network also noted additional mysterious transactions including IT charges, advisory fees, and technical fees.

As an example, the Bangladesh based BAT outpost claimed $21 million was owed to its British subsidiary, BAT Holdings, for a long list of accrued fees from 2014 to 2016. With payments sent to the UK subsidiary rather than kept inside Bangladesh, BAT was able to save nearly $6 million in tax fees thanks to an existing bilateral treaty between these nations. The report also noted that this amount would have allowed Bangladesh to cover health expense for 200,000 for one year.

BAT did comment on the report, but avoided taking any responsibility for the loss of profits to the developing countries involved, stating that the company “does not accept that there is any avoidance or loss of tax to the countries concerned in the manner contended by the report.”.

While it remains uncertain whether or not BAT will be penalized for reducing or eliminating the tax payments owed to developing countries, their actions will likely be highly scrutinized for years to come.

To learn more about this case or other instances of tax evasion, visit the  Newman & Shapiro  Whistleblower Help Center and blog!