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Dutch tax authorities: Tobacco giant BAT channelled billions through the Netherlands

According to the Dutch tax authorities (Belastingdienst), British American Tobacco channelled 4 billion euros in worldwide profits through the Netherlands without paying any tax on them.

The Investigative Desk

British American Tobacco (BAT), the largest tobacco manufacturer in the world in terms of turnover, used the Netherlands as a hub for tax avoidance for many years. Between 2003 and 2016, a total of 4 billion euros flowed from foreign subsidiaries via the Netherlands to the United Kingdom. This construction was set up to ‘withdraw profits from Dutch taxation’.

That was what the Belastingdienst’s lawyers argued during the first hearing of the tax dispute at the Court in Haarlem on Thursday afternoon. Because of the alleged tax avoidance, the tax authorities demanded 1.2 billion euros from BAT, according to earlier research by The Investigative Desk. The amount consists of retrospective levies, interest and fines. Only the part of the court case that concerns the fines is public.

According to the Belastingdienst, BAT’s Dutch holding company lent large amounts of money to subsidiaries abroad. The interest the subsidiaries had to pay on these loans depressed foreign profits. Under the guise of risk, BAT then redirected the income premiums from the Netherlands to a sister company in the UK. The British company guaranteed the Dutch loans on paper.

As a result of these payments, hardly any taxable profit remained in the Netherlands. In the opinion of the tax authorities, this was how BAT avoided the tax on profits. ‘The premiums that were paid were a multiple of what would be normal under business circumstances,’ according to the lawyer of the Belastingdienst. He spoke of ‘deliberate profit shifting’ and ‘transactions that you would never do with a third party’.

The tax authorities also believe that BAT and its tax advisers have misled them. From 2016 onwards, the parties negotiated about a possible fine for 18 months. During these talks, BAT submitted reports which, according to the tobacco manufacturer, showed that the money flows were perfectly legal.

But according to the Belastingdienst, these reports were ‘written primarily to disguise reality and to exonerate [BAT] from guilt’. The reports were written by one of the Big Four accounting and consulting firms. Which firm is involved is not known.

In the autumn of 2017, according to the Belastingdienst, it became clear that the talks with BAT were ‘pointless’, because the company was mainly stalling for time. After that, the claim against BAT increased rapidly: at the end of 2017, there was an additional levy of 199 million euros, which had risen to almost 1 billion euros a year later.

BAT’s lawyer denied at the hearing that the company was guilty of deliberate tax avoidance. According to BAT, the negotiations broke down in 2017 precisely because the Belastingdienst protracted the case. BAT previously expressed its full opposition to the claim of 1.2 billion euros: ‘BAT fully complies with all applicable tax laws in each of the 180 markets in which we operate.’ 

This is a production of The Investigative Desk, a co-operative of highly specialised investigative journalists focusing on the tobacco, defence, pharmaceutical, food, alcohol and energy industries.

By Stefan Vermeulen and Sergio Nieto Solis

Read the full article (in Dutch) here.

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