ActionAid critical of sugar firm on tax

The UK arm of ActionAid, an organisation that campaigns for the developing world, has highlighted the role played by an Irish company in what it says are tax-avoidance structures affecting the Zambian exchequer.

The organisation has published a report on an African sugar subsidiary of Associated British Foods (ABF). Zambia Sugar is part of the Illovo Sugar group, which was bought by ABF in 2007.

The report, Sweet Nothings: the Human Cost of a British Sugar Giant Avoiding Taxes in Southern Africa, outlines the role played by Illovo Sugar Ireland, which has a registered address at Grand Canal Square, Dublin, at the offices of Capita International Financial Services (Ireland). Capita recently bought AIB’s International Financial Services business, which previously provided services to Illovo Sugar Ireland.

According to the ActionAid report, Illovo Sugar Ireland has, since 2007, received more than $47.6 million (€35.5 million) for management services and secondment fees. Yet the financial accounts filed in Dublin by the company state that it has no employees. The report also says that, because of Ireland’s tax treaty with Zambia, the payments to the Irish company escape Zambia’s 15 per cent withholding tax on such transfers.

The report quotes ABF as having said that Illovo Sugar Ireland “provides real services . . . The company employs some 20 individuals . . . It facilitates various services required by Zambia Sugar, including the provision of senior management, engineers and agronomists . . . These are real people, doing real jobs, adding real value to Zambia Sugar”, and that “the notes to the company’s accounts failed to reflect this”.

The report said two substantial loans taken out to develop the Zambian company’s production capacity were taken out by the Irish company before it made a matching loan to Zambia Sugar.

According to the report, ABF told ActionAid that in the absence of this structure, interest on loans to Zambia Sugar would have been subject to the Zambian withholding tax.

In response to the report ABF said that, with limited detail, ActionAid had attempted to use Zambia Sugar’s tax affairs to gain publicity at the expense of accuracy. “Illovo denies emphatically that it is engaged in anything illegal, immoral or in any way designed to reduce the tax rightly payable to the Zambian government.”