Unlucky Strike: British American Tobacco embroiled in Dutch tax evasion scandal

October 3, 2019

2 min read

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What's going on here?

British American Tobacco has been issued with a £900 million bill after being accused of tax-avoidance on money channelled via the Netherlands.

What does this mean?

British American Tobacco (BAT) is one of the UK’s largest companies, and the second-largest cigarette manufacturer in the world, producing brands such as Rothmans, Dunhill and Lucky Strike.

The Dutch tax authorities have issued BAT with the £900m bill following a tax evasion investigation. The dispute is based on internal fees paid by Dutch subsidiaries for loans provided by the UK holding company. These fees were apparently artificially inflated to reduce the Dutch arm’s tax liabilities.

What's the big picture effect?

The claim is the largest to date made by Dutch tax officials against a multinational company. It has also been reported that similar discussions are currently underway with several other multinational companies, which concern claims for over £80m for channelling back taxes. BAT has publicly disputed the claim and is in the process of appealing against it. Nonetheless, following the Dutch media report, shares of BAT fell by 1.4% on the New York Stock Exchange.

This is not the first time BAT has been caught up in a tax evasion scandal. Just earlier this year, BAT was accused of costing developing countries, such as Bangladesh, Indonesia and Kenya, over £540 million in tax. It remains to be seen what scandal BAT will be embroiled in next, but given the ever-apparent risks of vaping, this seems ripe for further disputes.  

At present, the majority of BAT’s £24.5 billion annual revenue is derived from traditional cigarettes. However, it is currently trying to rebrand itself around new products, like vaping. To implement these changes, last week BAT announced plans to cut 2,300 jobs by 2020, to prepare for a shift towards non-tobacco products. This announcement came just one day after American President Donald Trump said he was considering a ban on flavoured e-cigarettes, due to concerns over a mysterious lung illness caused by vaping. To quash fears, BAT stated they would continue to work with the US Food and Drug Administration (FDA), but made no mention about potential links between vaping and lung disease.

Whether or not BAT will face legal action over vaping is still in doubt, but the reputational damage it will face as a result of this tax scandal is clear. BAT will now have to work hard to fight the Dutch case and to win back consumer trust.

Report written by Sarina Johal

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