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British American Tobacco Drains Nearly $700 Million in Tax Revenue from Low and Middle-Income Countries

Statement by Matthew L. Myers, President of the Campaign for Tobacco-Free Kids
April 30, 2019

WASHINGTON, DC – British American Tobacco is taking advantage of accounting loopholes to systematically shift profits out of low- and middle-income countries to avoid paying the full corporate income tax in the countries that most need these revenues, according to a new analysis published by the Tax Justice Network. Cigarettes cost the world $1.4 trillion annually in healthcare costs and lost productivity, making British American Tobacco’s accounting gymnastics to avoid paying taxes needed to fund healthcare and other essential services all the more reprehensible. Any argument that British American Tobacco strengthens nations’ economies falls flat when the company goes to such lengths to avoid paying its fair share of taxes.

According to the report, for every dollar British American Tobacco paid in tax in the developing countries where it operates, the giant tobacco multinational shifted more than half a dollar that would have been taxed locally to a subsidiary located in the UK where BAT paid almost no tax. The analysis estimates Bangladesh, Indonesia, Kenya, Guyana, Brazil and Trinidad and Tobago together stand to lose a total of nearly $700 million in tax revenue by 2030 from the financial maneuverings of BAT if business continues as usual.

Tobacco use imposes massive social and economic costs, especially in low- and middle- income countries where 80 percent of the world’s smokers live, yet British American Tobacco is exploiting the rules to pay far less than countries’ tax codes call for. In 2016, British American Tobacco shifted over 12 percent of the company’s global pre-tax profits – $941 million – to just one subsidiary that is based in the UK, where BAT paid almost no tax. This is just the tip of the iceberg for a company with over 100 offshore subsidiaries across 19 tax havens.

The staggering toll of tobacco is no accident. It is caused directly by companies like British American Tobacco who continue to sell cigarettes in ways that appeal to kids, marketing cigarettes on social media, introducing flavored cigarettes and conducting aggressive marketing near elementary schools.

In fact, British American Tobacco is already in tax disputes in countries including Bangladesh, Brazil, Egypt, South Korea, South Africa and the Netherlands for a total of over $2 billion if the judgments were to go against the company. The beleaguered company also faces investigations for corruption in the U.K. and Kenya.

British American Tobacco uses accounting tactics to reduce the corporate tax it pays including cross-border payments made within the multinational group for royalties, research, intra-group lending and as dividends.

To put the numbers in perspective for countries losing tax income due to British American Tobacco’s accounting trickery, Tax Justice finds:

  • In Bangladesh, BAT Bangladesh avoided paying nearly $6 million in tax revenue in 2016 alone – enough to cover the per capita health expenditures of over 170,000 Bangladesh citizens for a year.
  • In Brazil, British American Tobacco’s subsidiary Souza Cruz reduced its tax payments by $128 million between 2007 and 2014, enough to cover the per capita health expenditures for over 98,000 citizens per year.
  • Indonesia stands to currently lose nearly $14 million in tax each year due to payments between British American Tobacco and its Indonesian subsidiary PT Bentoel Internasional Investama, enough to cover the country’s yearly per capita health expenditures for 125,000 citizens.

Today’s report is further evidence – as if more evidence were even needed –that low- and middle-income countries cannot trust British American Tobacco and must immediately launch investigations into the company’s corporate tax payments or continue losing millions in sorely-needed revenues. The report paints a picture of a company intent on maximizing profits for its shareholders – the overwhelming majority of which live in high-income countries – and paying the minimal amount to countries left to deal with the burden of death and disease caused by its products.