LONDON -- Associated British Foods (LSE:ABF) has been forced to deny allegations that it is illegally or immorally avoiding paying tax in Zambia totaling millions of pounds owed to the country's government.
The British multinational company, whose brands include Silver Spoon, has refuted allegations by anti-poverty charity ActionAid that, after posting record pre-tax profits, its Zambia Sugar company is dodging its tax bill in one of the African states hardest hit by malnutrition.
In a recent report, ActionAid had stated that Associated British Foods "has found legal ways to siphon over US$83.7 million (US$13 million a year) -- a third of pre-tax profits -- out of Zambia into tax havens including Ireland, Mauritius, and the Netherlands".
ActionAid tax specialist Chris Jordan commented:
International corporate tax avoidance is like a cancer eating away at both rich and poor countries. As we've seen with Starbucks and [Amazon.com], many multinationals are not paying their fair share of tax, and this hurts ordinary people in the U.K. and in the developing world. Tax avoidance by Associated British Foods in Zambia is helping to keep people locked in hunger. We know that business can be a force for good in Africa, but this is massively undermined when a company doesn't pay its fair share of tax.
However, Associated British Foods finance director John Bason responded: "The reason that no corporate tax is paid in Zambia for the last couple of years is because of our [150 million pound] investment building the biggest sugar mill in the country. There are capital allowances available on that, in the same way similar reliefs are available to investors in most countries, including the U.K."
Bason continued by saying that it was "absolutely not true" that Zambia Sugar is funneling a third of its pre-tax profits to sister companies in tax havens including Ireland and the Netherlands, and that no payments went to the Netherlands, as ActionAid claims. "The Netherlands is a holding company to Zambia, so dividends go there and dividends come out after pre-tax profit. ... We've been wronged."
Swiftly and strongly denying the tax-avoidance claims, this ought to be no more than a minor blip on Associated British Foods' track record, after proving to be one of the FTSE 100's best-performing shares in 2012. Still, private investors owning or interested in the company's shares would be wise to keep their eyes and ears open to any further developments with this story.
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Sam Robson has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Associated British Foods, and Starbucks and owns shares of Amazon.com and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.