Nothing dubious in Big Tobacco’s tax records

It is the irony of ironies. Dollar for dollar, the tobacco companies appear to do more for Australian hospitals, roads and schools than any other group of foreign-controlled multinationals who operate in this country.

An analysis of the financial statements of the three major tobacco companies here, Philip Morris (Australia) Ltd, British American Tobacco (Australasia Holdings) Ltd and Imperial Tobacco Australia Ltd shows the despised cigarette manufacturers abide by the accounting standards and pay their fair share of tax – on top of the billions in excise they pay every year to state and federal governments.

Over four years, Fairfax Media has investigated the accounts of multinationals operating here: the new breed of global digital companies such as Google, Apple, Facebook, eBay and PayPal, resources giants such as Glencore, Rupert Murdoch’s media empire News Ltd, betting behemoth William Hill, services juggernauts Serco and G4S, oil giants Chevron and Shell, and major drug companies, including Pfizer.

They show an alarming failure to comply with accounting standards (and therefore the Corporations Act), and a failure to deliver financial accounts devoid of dubious tax schemes such as large and uncommercial payments to related companies overseas.

In contrast, the cigarette manufacturers are pulling their weight. The most often reviled of these is Philip Morris, which is suing Australia in a Hong Kong court over its successful plain packaging laws, at a legal cost to taxpayers here estimated at $50 million.

Profits revealed

Philip Morris’ accounts filed with the corporate regulator show the company made $3 billion in revenue last year and paid $2.1 billion in government levies. After its other costs of operating the business, it recorded a profit of $502 million and a tax expense of $152 million.

Actual tax paid was $247 million (on top of the $2.1 billion in duties – and on top of the $200 million and $2.1 billion in income tax and duties in the previous year).

The biggest cigarette manufacturer is British American Tobacco, which notched up $6 billion in sales last year. Of that, almost $4 billion went in government levies even before the company made a profit of $1.2 billion and recorded $455 million in income tax paid.

That’s an eye-watering $4.4 billion in tax and duties to governments on sales of $6 billion.

The smallest player in the sector, Imperial Tobacco, recorded sales of $656 million a profit of $31 million and tax paid of $11 million, although its accounts were not as clear and featured related party transactions, proportionately, at a much higher level than its peers.

Of note were “fees received for brand promotions” at $70 million (paid to its parent overseas). Because promoting cigarettes is prohibited in Australia, this may relate to other countries in the region.

Danger pay?

Another interesting facet of the financial accounts of Big Tobacco is the remuneration. British American Tobacco directors were paid $9.3 million last year and key executives $5 million, indicating the “danger money” – the prospect of litigation – in being a director with Big Tobacco.

It should also be said that, collectively, these appear to be the simplest and cleanest sets of financial statements by any group of multinationals operating in Australia.

They have provided “general purpose” accounts too, audited by PwC, rather than the “special purpose” accounts furtively favoured by most multinationals.

The distinction is important. The latter require a much lower standard of disclosure. It is hard to tax things that are hidden.

University of NSW accounting academic Jeff Knapp told Fairfax Media; “These companies, and the auditor PwC, seem to be taking their accounting and accountability seriously.

“If Philip Morris can put together general purpose financial statements, why can’t other multinationals? If they can pay the effective corporate tax rate of 30 per cent, why can’t the others?”

Whistle blown

The Seven Network’s Sunday Night program this weekend featured an interview with Antoine Deltour, who walked out of his job with PwC in Luxembourg in 2010 and released 28,000 documents, which led to the LuxLeaks scandal, embroiling multinationals around the world for tax avoidance.

“Things … are not legitimate because everybody should pay their fair share of tax. It’s a matter of tax justice. I mean, we need schools, we need hospitals, we need roads, and I pay for that in my revenues and I don’t understand why internationals wouldn’t contribute to the common good,” he said.

Most people in the world will be barracking for the 29-year-old Frenchman as his trial looms in Luxembourg and he faces the spectre of hefty fines and a five-year jail sentence for his mighty act of public interest.