Tobacco company dodging huge tax tactfully

Bangladesh loses nearly $6m revenue for BATB’s profit-shifting

A massive tax dodging has been found against British American Tobacco Bangladesh (BATB). The multinational company is dogging huge tax tactfully, says a recent report of Tax Justice Network (TJN).

According to the UK-based research’ organisation’s report, Bangladesh lost $5.8 million in tax revenue in 2016 due to profit shifting in forms of royalties, fees and IT charges by the BATB.

The tobacco company shifted the profit to its associate company in the UK where it paid almost no tax.

The TJN in its report said that from 2014 to 2016, BATB declared $21 million a year in obligations owed to BAT’s UK subsidiaries in royalties, technical and advisory fees and IT charge – equivalent to 15 per cent of BATB’s pre-tax profits over the three years. The payments allowed BATB to avoid paying the corporate tax rate on the $21 million it shifted into the UK and instead pay much lower withholding tax rates, costing Bangladesh $5.8 million in lost tax in 2016 – enough to cover the Bangladesh government’s per capita health expenditures for over 170,000 citizens for a year.

In reaction, BATB said, “As a listed company BATB is also regulated by the Bangladesh Securities and Exchange Commission Act. The local board of directors is required to approve all royalties and fees before these can be remitted.”

Post board approval, invoices and detailed calculations are provided to the Bangladesh Bank, the central bank of Bangladesh, for review and approval and on top of that, before remittance an application is made to Bangladesh Investment Development Authority for approval, it said.

According to the TJN’s report, BATB shifted royalties just over $5 million to British American Tobacco (Holdings) Limited, technical and advisory fees of $10-12 million a year to BAT Investment Ltd and more than $5 million in payments a year for IT services to BASS GSD Ltd.

The report said that Bangladeshi corporate tax rate of 45 per cent in 2016 for tobacco companies on amount would have yielded around $9.5 million in each year, on average.

BATB shifted the amount just paying $3.7 million in withholding tax at the rate of 10 per cent to 20 per cent on transfer of royalties, technical and advisory fees and IT charges.

The report also said that in 2016 BATB made a net profit of around $88.9 million (Tk 760 crore), much less than the estimated $1.9 billion (Tk 15,800 crore) of economic damage caused by smoking.