A campaigners’ code of conduct and the ABF story

I see Ben Saunders has taken up the ABF story with two really interesting posts, the first relating it to Bill Dodwell’s call for a campaigners’ code of conduct, and second to what on earth Zambia was doing signing its bonkers treaty with Ireland. As I’m writing this in a break from struggling to put together a PhD chapter on developing countries’ tax treaty policy, let’s have a look at the code of conduct point.

Ben is right that some campaigners have not exactly responded to this suggestion in a very mature way (although with the recent ‘tax prat’ incident I don’t think either side is exactly upholding the standards of decent debate). But I also agree with Chris Jordan (in the comments here) that the way companies respond to allegations is rarely whiter than white as well: this was the gist of my post last week, in which I felt it unfair that ABF’s misrepresentations of the ActionAid allegations and – in some cases – of its own position had been, for the media, the last word on the story.

I remembered that I wrote a post a few months ago that made a couple of suggestions for where campaigners could behave a bit differently. I thought it would be interesting to reflect on ActionAid’s ABF report in the light of this.

Here’s what I wrote at the time:

There are two things that I think campaigners, and occasionally the media, tend to do which perhaps undermine their case a little.

The first is to jump on every case that suits their argument – or in some cases, that is consistent with how they know companies tend to behave – without checking the facts….it’s important to be clear about the limits of the evidence in each case.

The second mistake that I think campaigners make is not to clarify terms well enough. In particular, ‘tax avoidance’ has a very specific meaning to tax professionals, which is different to how it’s understood by the lay person. For most people, the important distinction is between illegal tax evasion and legal tax avoidance; to them, any tax practice that ‘smells bad’ fits into one of those two categories. But technically, to qualify as ‘tax avoidance’ a practice generally has to fall into a space bounded on one side by the letter of the law, and on the other side by the intention of parliament.

Limits of evidence

The ActionAid report itself is very much “this is what we know, this is what the company says, this is the conclusion we’ve reached,” giving the reader the space to question that conclusion (as some have done). I’m convinced of their case, and I am not always. What readers may not realise is that there are many putative NGO reports like the ABF one that haven’t made it to print, because the evidence isn’t up to snuff. I can think of one where I was sure there was a case, but we couldn’t prove it, one where somebody got the wrong end of the stick and had to be persuaded not to publish, and one that was published despite analytical flaws.

Now, I think Ben is right that one of the big questions hanging over the report is the company’s assertion that the Irish and Mauritian companies pay tax at 28% because of South Africa’s controlled foreign companies regime. This affects allegations of profit shifting, but not of withholding tax avoidance. What to do when a company throws this at you? It will have been difficult for ActionAid, because from the moment they got in touch with ABF, everything the company said in correspondence will have been written with the sole objective of killing or undermining the story, not of ensuring accuracy. I spotted a few sentences in the letters from ABF [pdf] that I could see were clearly written to mislead, just like the way the “we’ve been wronged” quote in the press about the Dutch part of the story only works if you haven’t read ActionAid’s allegations and so can’t spot that it’s based on a blatent misrepresentation of the allegations. So I don’t have much trust in anything ABF says. And the problem is that after a successful bit of presswork it can put the burden of proof onto ActionAid and then go back into its bunker, where it has all the information, and leave us all to speculate. I would have done what ActionAid did in its report, which is to show the evidence it has, and leave it to the reader. And focus on the cost to Zambia, which holds regardless of any saving or not to the company.

Avoidance or not?

There is, I think, a major point and a minor point here. The major point is that ActionAid shouldn’t have gone out with zero tax paid” as its topline. It didn’t need to. It could have led on the $27m figure instead. There’s a particular problem with this ActionAid webpage that says:

Associated British Foods, owners of many household brands like Silver Spoon and Kingsmill has been paying virtually no corporation tax in Zambia – one of the poorest countries in the world. This has cost Zambia an estimated US$27 million since 2007.

The reason ABF paid zero taxes from 2007-12 was mostly, if not entirely, because of capital allowances, not the practices criticised by ActionAid. This problem is about the topline messaging, not the validity of the analysis underlying the report, which does acknowledge the capital allowances upfront. But as Ben points out, the ethical reasons to be accurate may be less significant here than the tactical ones: the top line in all the press work allowed ABF to come out on the front foot with a denial that knocks down the topline message but is irrelevant to the substantive allegations. If I were at ActionAid I’d be kicking myself over this.

(The one way ActionAid can defend this decision is that at there will come – may already have come – a point at which the capital allowances are used up and the company starts paying taxes again, and that point will come later because of the “profit shifting” it alleges).

The other point is about which of the alleged practices constitute avoidance – and indeed what exactly is being avoided. Here I think ActionAid is on a surer footing.

First, there’s $9.3m from the tax incentive. That’s not tax avoidance, but nor does ActionAid say it is. Even the much-criticised infographic is quite clear about that. Is it legitimate to criticise a company for using the courts to get a tax incentive that it appears the government did not intend it to be eligible for? Absolutely. Certainly not ‘unscandalous’ as Maya calls it. ABF argues in the correspondence that the refund it got for the retrospective application of the tax incentive shouldn’t be counted as a cost to the government over 2007-12. I could be persuaded either way on this one, but it’s a judgement call, not a matter of fact.

Next, $10.4m in withholding tax avoidance. I think it needs emphasising more that not only is this treaty shopping, but it’s also undisputed by everyone: ABF only manages to deny it in the Telegraph by pretending ActionAid is alleging the avoidance of Zambian corporation tax instead. Ben wonders whether this is ABF’s fault or the Zambian government’s, but I think treaty shopping is quite clear cut letter and not intention of the law, isn’t it?

Finally the $7.4m through the management fee payments. Now I think the report is deliberately ambiguous on this: approximately $7.4m of Zambian tax is avoided. If the services are really provided ‘at cost’, that’s withholding tax; if they’re not provided at all, it’s corporation tax (the saving just happens to be the same either way); most likely, since there’s a 26% profit margin in Ireland, the truth is somewhere inbetween, but the report is upfront about not knowing which it is. This is the bee in Maya’s bonnet, but I just don’t think it’s that big a deal that ActionAid decided to simplify matters by saying it was corporation tax. I might have taken 26% as corporation tax and 74% as withholding tax, but the cost to Zambia would be the same. The only differences it makes are:

  1. to the “ABF paid no corporation tax in Zambia because of profit-shifting” topline, which shouldn’t be there anyway; and
  2. to the strength of ABF’s controlled foreign company rules argument, which only works on the corporation tax side.

The reason I’m not so bothered about whether this would be some kind of fraud is my experience from research in Ghana. How this stuff seemed to work there was as follows. The investment promotion authority authorised a contract for, say, management fees up to a certain percentage of turnover. The tax authority didn’t ask whether there was any substance underlying the payments, it just checked that the fees were leaving Ghana as per the contract. It was just understood that you could claim up to a certain amount without having to justify it. I don’t know if that is what is happening in this case.

What about this code of conduct?

In a week when the OECD published a report that criticised NGOs for blaming all tax avoidance on transfer pricing, ActionAid published a report in which most – possibly all – of the allegations are about treaty shopping and tax incentive, not “profit shifting”. That’s a welcome departure. But then they shot themselves in the foot by leading with a topline that wasn’t really correct. ABF came out with a very well put-together denial that called ActionAid out on this one point but mostly downright misleading. Journalists printed that unquestioningly.

If I were drafting a ‘code of conduct’, I might include:

  1. being clear about the limits of your evidence;
  2. ensuring that your campaign communications and media releases, not just your report, reflect this;
  3. being clear when your allegation is of tax avoidance and when it’s of something else, such as pursuing a tax incentive in this case;
  4. giving the company a right of reply, and publishing the correspondence;
  5. have an independent tax professional look over the report and the company’s response, and comment on it before publication;
  6. publish that independent commentary, including the commentary on the company response.

In this case, ActionAid did 1,3,4 and 5 (yes, they had a former tax inspector look over the report). Their error was in not getting 2 right.

As for 6, I think the problem is that the debate has become so polarised, finding tax professionals who commanded the confidence of both sides would not be easy. As I have written more than once, while mistakes do happen on the campaigning side, I find that the tax profession often have a tendency to confound differences of opinion about how the world should be with factual errors about how it is.

So maybe now I am suggesting that a code of conduct for NGOs would need to be supplemented by a) a code of conduct for companies responding to avoidance allegations (why not have these independently verified too?), and b) a code of conduct for tax professionals assisting NGOs and companies as part of their code of conduct. Or would that be too meta?


  1. I really don’t think it is ‘no big deal’ for an NGO to put out a story that claims to ‘expose massive tax dodging’ if the outrage it provokes is caused by misleading headlines and claims. So yes, i do have a bee in my bonnet (do tax blokes get to wear bonnets too?)

    By all means Actionaid could have put out a report about ABF taking the Zambian authorities to court to reduce its tax rate, and about it avoiding paying an additional withholding tax on interest payments, dividends and payments to foreign contractors. All of this is undisputed.

    But then Actionaid would have to make the case that it is in Zambia’s best interests to make sure that international companies investing there pay 20% instead of 18% (?!) interest on international bank loans, pay a surcharge of 15% on any technical experts they bring into the country , and pay an extra 15% tax to take profits out of the country, after they have already paid corporate income tax.

    I don’t think this case is so easy to make (and i’m not convinced it really is top of Zambia’s economic priorities), but ABF was an easy target because they had paid “virtually no income tax” for reasons that were apparently completely unremarkable.

    99% people who now think ABF is a tax cheat will not have read the report. They will have read the newspaper headlines and tweets or seen the video or infographic. They will view the fact that ABF paid virtually no CIT as a smoking gun.They will think that ABF “siphoned a whopping one third of pre-tax profits out of Zambia into tax havens”. Except it didn’t. It paid $30m interest (not profits), and $53.7m costs (not profit, as far as we know). They will think that everything else in the report is the icing on the cake to these two obvious misdeeds.

    I don’t think it is good enough to promote misplaced outrage, and then point to the small print in the report (some of which, as we have discovered is quite hard to parse) and claim plausible deniability for people getting the wrong end of the stick. Its not ethical.

    …and so that brings us back to the charge that ABF should have paid income tax on the $47m to Ireland.

    Without this link to CIT the two most explosive headlines – the one that focuses on ‘virtually no tax’ (and the related comparisons with local stall holders), and the one about siphoning pre-tax profits are irrelevant and unsuportable, because the story is about WHT not CIT (except for £3m).

    And yet whenever we get close to this crucial claim, which is the one that would fit most people’s definition of a “global tax scandal” we are told ‘oh, it might have been WHT’, or the answers dry up completely (possibly for legal reasons as you have noted).

    I really don’t think it is a trivial distinction to know whether a company is paying its international contractors through a base that allows it to avoid paying a 15% surcharge, or whether it is pretending to pay for international contractors but really just pocketing all the money as untaxed profit. I am kinda perplexed that you are so laid back about the distinction.

    I think your six points sound like a good idea. I would make the independent commentary a panel of experts (development, comms, journalism etc..) not just an accountant – their aim should be to stand in for the reader and avoid them being manipulated, even in a good cause.

    1. Where I don’t agree with you at all is that there’s a big difference in importance between CIT and WHT. I wouldn’t dismiss WHT as a ‘surcharge’ or ‘extra tax’ – it’s a fundamental part of how the international tax system allocates taxing rights to developing countries. I don’t think a pound of WHT avoided is any more acceptable than the same amount of CIT avoided.

      Funnily enough, in the academic literature the argument is often advanced that tax treaties might discourage investment because they give countries greater powers to investigate CIT evasion, thus lowering returns (in general the evidence that tax treaties encourage investment is lacking, hence my PhD). So your tax enforcement versus investment framing (as in AA must make the case that treaty shopping is not in Zambia’s best interests) is a slippery slope.

      From my point of view, where the CIT and WHT allegations are of equal consequence, the report’s ambiguity on this point is not so important. I can see that if you think WHT is not such a big deal, then that doesn’t hold. But I don’t think that starting point is very compatible with the way the international tax system divides up taxing rights.

      Yes by all means have these people advising NGOs on reports. I don’t think any development NGOs would turn down the kind of expert input that Ben is suggesting, I know we worked hard at ActionAid to diversify from the usual suspects, with mixed success. But you didn’t address the issue of companies’ responsibility to be a bit more honest when it’s a fair cop. How do we deal with that?

      1. I don’t think there’s an important difference between CT and WHT per se, but the reason why one should be paid rather than the other is quite important.

        There are a few alternatives one could posit as to what should be happening:

        – WHT should be paid because the DTA shouldn’t reduce the WHT to nil.
        – WHT should be paid because the company receiving the fees shouldn’t be in Ireland
        – CIT should be paid because the fees are too high
        – CIT should be paid because the fees aren’t for anything at all

        I’m not really sure which Action Aid thinks should apply, but I think it does make a difference because the different options mean ABF has done more or less wrong.

        If Zambia shouldn’t have agreed a nil WHT rate with Ireland, that’s Zambia’s fault. If ABF shouldn’t be operating out of Ireland then ABF has been treaty shopping, and opinion differ on how acceptable that is. If the fees are too high it’s a TP issue. If the services are non-existent, then we may have fraud.

        I think that if you’re saying something’s wrong, you ought to say what’s right. If you’re saying that tax has been avoided, you should say what tax should have been paid and why. You shouldn’t just say “This tax has not been paid”, as there are a host of potential reasons for that.

        That is, because Action Aid haven’t said clearly what they think should be happening, I can’t distinguish whether the “avoidance” is ABF’s fault because they’re over-charging for services, or Zambia’s because they’ve signed a bad DTA. If the argument can be read as blaming Z, then I have trouble with saying A has a case to answer.

        1. *Puts on bonnet*

          I’ve written a long reply to this twice only to have it eaten by WordPress. Suffice it to say that I think the lack of substance in Ireland is shown quite convincingly in the report, which means it’s more than your first bullet.

          Also, why in all the correspondence hasn’t ABF specified the services that are provided in turn for the fees in detail? Who is employed, and what are they doing? Providing a list would surely be pretty convincing if the fees really can be justified…

          *removes bonnet*

        2. Condolences, I hate it when things eat posts 😦 I often (but not often enough) draft them in an email and copy across, to be onthe safe side.

          I’ve not read the report exhaustively, but IIRC the conclusion was that the Irish company had no, or very few employees, and so had little substance. But if the contractors supplied were self-employed, or through other companies, that would be entirely consistent. You don’t need to have staff to provide staff.

          A list would be pretty convincing, but could be a bit commercially sensitive. Absence of evidence is slightly suspicious, but it’s not evidence of absence.

          But anyway, if the charges are being made for non-existent services then the issue would seem to be more than a tax question.

    2. I wear a bonnet occasionally – at least I think my (Scottish) father-in-law would call it a bonnet. It’s not in a tax capacity, though.

      I agree with you about the misleading nature of the infographic and the headlines. I think part of this is that I consider it to be Zambia’s business as to whether they offer tax incentives or not: it’s not appropriate for me to tell them how to run their finances.

      But to me “ABF pays little or no tax” is perfectly fine, if there are good reasons for it. TO me, and I appreciate that I’m speaking as a tax professional, the headlines are of the order of “Man bites dog!”, where the dog in question is a hotdog. It’s not news, but it can be made to sound as though it is.

      1. Andrew –

        It’s probably not been hugely apparent from the UK media & commentary, but this report has been a collaborative effort between ActionAid in the UK and Zambia.

        Our Zambian colleagues have long been pushing their government to improve national tax rules & this report has provided further impetus for this work. The government is currently reviewing it’s whole approach to tax incentives, in part due to pressure from civil society organisations.

        If you have a look at the recommendations (p34 of the report) you’ll see that we have more focused on Zambian government action than anything else.

        1. Fair enough. Reform of national tax rules is, almost invariably, well overdue (I know the UK could use a lot of it).

          But if the action points are for the Zambian government to sort out, it seems a bit odd to blame ABF for the situation.

          Would it not be more helpful to the cause of Zambian tax reform to say “ABF pays little or no tax in Zambia, due largely to Zambian tax rules and incentives. We are pushing the government to improve on this situation”?

          I can see that such an approach might harm the reform efforts, of course, but that would perhaps mean you’re making ABF something of a scapegoat.

  2. Maya –

    You’re a corporate social responsiblity / sustanability consultant right? I’d be really interested to hear what you think about the case from this perspective.

    Are the deliberate tax choices made by the company justifiable simply because they’re legal, or do you think that in claiming to act in a socially responsible manner they should have altered their tax practices?

    If you need a primer on this, take a look at ActionAid’s Tax Responsibility briefing published a couple of years ago: http://www.actionaid.org.uk/doc_lib/tax_responsibility.pdf

    There are similar briefings from the KPMG Business School, Corporate Citizenship and Christian Aid if you want to read more widely on this issue.

  3. Martin –

    I think your criticism that the headline web copy over-simplified the issue is reasonable. We’ve just amended it to:

    Associated British Foods, owners of many household brands like Silver Spoon and Kingsmill has been paying virtually no corporation tax in Zambia – one of the poorest countries in the world.

    A combination of tax haven schemes and special tax breaks has cost Zambia an estimated US$27 million since 2007.

    That’s enough to put an extra 48,000 children in school, or help end hunger in the country. Zambia needs this money to tackle poverty and free itself from a dependence on aid.


    1. This is possibly not the appropriate time, palce (or way) to ask this question, but your web copy prompts it:

      You talk about “fair share of tax”. If ABF (or any company) is working within a framework of legislation, tax treaties and tax incentives decided on by a government, how do you determine that a different amount is a “fair share”?

      When I consider the proposition that the “fair share” can differ from the strict legal position, I end up coming to the conclusion that if it’s inappropriate to accept any special offers from governments.

      Which then makes me wonder about the way I seek out 2-for-1 offers in Sainsbury’s…

      1. In this case, we started from the position that Zambia is clearly not receiving a fair share of tax from a company that has generated profits of $123m since 07 (which was part of the reason for including it in the headline messaging).

        Ultimately we recognised that is the national & international rules that need to change to ensure this happens (or at least that we get closer towards it), but we do think that responsible companies can (and do) decide to shun aggressive or artificial arrangements in their tax affairs.

        The Tax Responsibility briefing (link above) outlines in more detail what this means in more practical terms.

        1. But why is nil not a fair share?

          OK, nil is clearly not fair in isolation. But nil because Zambia wants to encourage investment, and to promote trade with Ireland?

          What do you think the “fair share” is that ABF should pay, given the investment? And how should that liability arise?

          For example, should they pay $27m of CT on profits of $76m, because they should disregard the court ruling that they qualify for the farming rate and not claim capital allowances in excess of depreciation, and $7.1m of WHT on fees of $47m because they should have decided to run the management services out of a non-treaty country?

          Or should it be $12.3m of tax on all the profits because the management fees should be completely disregarded as being spurious, the capital allowances should only match depreciation, but using the farming rate is OK?

          There are any number of other combinations, of course, and these are very simplistic ones.

        2. The thing is though Chris (and I will come back on your other question – but it’s longer).

          If ABF had not pursued the farming rate tax cut, did all its business out of Zambia, South Africa and the UK, paying the resulting WHT, they would still apparently be paying “virtually no” corporate income tax from 2007-2012. The $27m estimate and the CIT bill for those years are completely independent (apart from the allegation which dare not speak its name). It is not helpful to a grown up public debate on tax issues to elide the two (even if you put a paragraph break in between).

  4. One of the things I was thinking was that a code of conduct might help researchers get access to information.

    I can’t imagine any business is going to give you confidential information. There are lots of reasons for this. One of these is to protect their employees.

    Without any realistic guarantee of confidentiality, an employer might be breaching their care of duty to an employee by allowing something with their name on it to enter the public domain in relation to an emotive public topic.

    I can also see that being given as an excuse.

    But by having a practical work-around, like offering a mutually agreed independent assessment subject to non-disclosure agreements regarding confidential or sensitive information, you might avoid the impasse based on mutual mistrust.

    It’s just a thought, but it gives the business an opportunity for them to guarantee that the focus on their business is dealt with. Otherwise there is a continual threat that it might resurface.

    A bit of an odd thought, perhaps, but I thought I’d mention it.

    1. I think it is a good point. What is needed for trust here is an assurance that NGOs are engaging in good faith communication of their findings.

      This of course means not disclosing confidential information, but it also means not presenting information (which may already be in the public domain), in an inflammatory (e.g. the much quoted ‘virtually no income tax’ headline), or downright misleading way (.e.g. ‘ABF siphons 1/3 of pre-tax profits into tax havens’).

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