International Development CommitteeSupplementary written evidence submitted by ActionAid

Additional Evidence from ActionAid, April 2012

1. Following the oral evidence sessions of 28 February and 24 April, we have a number of clarifications for the committee.

ActionAid Staff in Developing Countries

2. Martin Hearson was asked in oral evidence whether ActionAid employs any British expatriate staff in developing countries on permanent or long-term contracts and who do not pay tax in the countries in which they work. We have now investigated this question and can confirm that all of our expatriate staff are registered taxpayers in the countries in which they work. We are aware of only one exception to this, in Cambodia, which is the result of a local law concerning expat NGO staff which we expect to be reversed soon. We would like to emphasise that the vast majority of our staff are nationals of the country in which they work.


3. A number of statements given by Graham Mackay, SABMiller’s Chief Executive, in his oral evidence merit some clarification:

3.1Mr Mackay stated that “our production is all local”, a point that is hard to reconcile with SABMiller’s own information. Its website states that, “In 2010 we established a global procurement business called Trinity Procurement. For those products and materials such as packaging that all our businesses require, we are able to establish group-wide buying deals and benefit accordingly.”1 Mr Mackay has previously stated that “Taxation was a key part of our decision to locate [this] new global procurement business not in the UK but in Zug in Switzerland.”2

As a further example, Zambian Breweries’ 2010 accounts show that around 80% of its cost of sales was attributed to goods and services sourced from SABMiller procurement hubs in Mauritius and South Africa, rather than locally.

3.2Mr Mackay suggested that SABMiller has a high effective tax rate, which places the company in the “upper quartile of the FTSE100”. The company’s effective tax rate according to its 2011 annual report was 28.2%, which exceeds the UK statutory rate, but not that of many of its major operating markets. For example, its biggest single market is South Africa (23% of pre-tax profit) where the statutory rate is 34.55%; its biggest region is Latin America (31% of pre-tax profit), where the statutory rate in four of its six operating countries exceeds 30%.

3.3 We have attached a copy of SABMiller’s response to our allegations, which we sought ahead of the publication of our report, for the committee’s information in the light of Mr Mackay’s comments about our correspondence. Elements from this response were incorporated into the final published report, and the response was published on our website along with the report on the day of publication.

Public Availability of Accounts

4. Emmanuel Mutati, Chief Executive of Mopani Copper Mines, explained to the committee that his company’s accounts are filed with the appropriate official body in Zambia and, suggested that they are available for public access. We can inform the committee that, in common with many developing countries, our colleagues in Zambia have been unable to gain access to these accounts (or indeed those of many other major multinational companies) through this channel, despite repeated efforts. This is of great concern to civil society organisations in developing countries, but it also creates obstacles to the effective administration of transfer pricing by revenue authorities, by limiting the availability of ‘comparables’. We contributed to the report on this subject prepared by the OECD secretariat, to which Chris Lenon of the Business Advisory Committee to the OECD referred, and we encourage the committee to seek a copy of this report for a useful summary of the issues in this area.

The Arm’s Length Principle

5. We would like to make an observation concerning the point made by Mr Lenon about the arm’s length principle. We agree that a key reason that developing countries get a raw deal from transfer pricing is that most of the activities undertaken by multinational companies in developing countries are low value-added, and therefore result in a low allocation of taxable profits. But the current system of transfer pricing actually plays a causative role in the business decisions that lead to this unfavourable distribution of high- and low-value activities.

6. As was observed by a number of witnesses, the major issues in transfer pricing are intangible assets, group services, and the reorganisation of business supply chains. Transfer pricing encourages the location of these business activities in low-tax jurisdictions. Businesses will choose to centralise functions for a variety of reasons, but the fact that they frequently do so in low-tax jurisdictions suggests that the tax motive is one driver. An article in the Financial Times by a KPMG tax adviser explains that, “of the supply chain reorganisations we advise on, there is a rough 50:50 split between those based around a low tax location and those where tax savings do not feature.”3

7. For example, SABMiller states in its written evidence that it has centralised the administration of its intellectual property management and its management services. In doing so, it has moved many of the higher-value activities of its business out of developing countries and into low-tax jurisdictions (on paper, the Netherlands and Switzerland). Regardless of the motivation for this centralisation, it not only affects the global distribution of SABMiller’s tax liability, but also the extent to which its investments result in positive spillovers such as knowledge transfers and economic linkages in the local economy.

1 SABMiller, Sustainable Development Performance 2011. Available at

2 Kleinman, M. Brewing Boss Launches Tax Attack.28 January 2010. Available at

3 McDougall, S. Guest column: Tax emerges from shadows. Financial Times, 25 February 2011. Available at

Prepared 20th August 2012