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THE Directors of Guinness Nigeria significantly increased their pay in the last five years, even as the drink company’s profit margin was virtually halved, its accounts revealed.
Guinness Nigeria which is among the top three breweries in the country is a subsidiary of Diageo plc, one of the world’s largest producers of spirits.
In 2019, it was reported that 40 per cent of Guinness consumed worldwide is being drunk in Africa with the highest consumers of the alcoholic beverage on the continent being Nigerians. This places Nigeria as the second-largest market for Guinness beer in the world after the United Kingdom.
However, despite recording an increase in Nigerian sales over the last five years, the company has also seen a decline in its profit margin from 9 per cent recorded in 2015 to 5.4 per cent in 2019. Worthy of note is that prior to 2015, the company regularly reported profit margins in the double figures, before tax.
Notwithstanding its falling profit margin, the annual financial reports showed that the chairman and directors of Guinness Nigeria whose number ranges between 14 to 16 directors have seen their pay tripled from N245 million in 2015 to N963 million in 2018, excluding pensions or payments in shares, before it dropped to N489 million in 2019.
Meanwhile, the company’s workforce shrunk from an average of 1,371 workers in 2015 to only 780 workers in 2019, a 43 per cent workforce cut within the space of five years.
In 2015, the remuneration of the highest-paid director was about six times higher than the average worker and by 2019 his remuneration was seventeen times higher. About 40 per cent of the total benefits paid to directors, went to this one director.
Although the total pay of the company’s remaining employees recorded a 22 per cent increment since 2015, the sharp difference in wages between its top and bottom cadres is noticeable in the face of reduction of the labour force.
A top senior government official who pleaded anonymity told the reporter: “Although companies preach the practice of the bottom to the top pyramid of work practice, it is never so in the real sense. We all know that these workers do more than the bosses but because of the titles that come with these jobs it becomes the norm of “monkey dey work, baboon dey chop.”
Comrade Mike Olanrewaju, Deputy General Secretary of the National Union worker of Food Beverage and Tobacco Employees (NUFBTE), said Guinness Nigeria laid-off workers based on “the challenges that the company is experiencing in connection with the downward performance of the company,” said Olanrewaju. “Sometimes, the reason is due to the automation of some kind that led to restructuring in staff strength.”
Nonetheless, he expressed displeasure with the outsourcing labour strategy used by the brewing company in ensuring that they continue to have a big workforce, whilst making it impossible for workers to be identified as permanent staff in the company.
Portions: Related parties dues and tax returns
It is worth noting that Guinness Nigeria would have made more profit but for its payment to overseas companies, which are also owned by Diageo, for technical service fees and royalties.
Between 2015 and 2019 Guinness Nigeria incurred N10 billion in fees to related companies for the “know-how, manufacturing, distribution and marketing” of international brands belonging to Diageo, including Guinness, Harp beers, Guinness Malta, and Smirnoff vodka.
Guinness Nigeria has also incurred payments of another N80 billion to related companies over the last five years for “purchases, promotional support and other services”. ( Although the company also earns some money by selling goods and services to other Diageo companies such as Guinness Ghana.)
Meanwhile, Guinness Nigeria reported just under N28 billion in profits before tax and paid just under N7 billion in corporate income tax to Nigeria on these profits in the same period.
The ICIR asked Guinness Nigeria by email in February why the company is still unable to provide these services for itself, despite having been in business in Nigeria for more than fifty-five years. Until the time of publication, the company had not responded.
These payments to related parties are so large that they have a significant effect on Guinness Nigeria’s taxable profits.
Although there is no suggestion that such payments to related parties are illegal as Guinness Nigeria has certificates from Nigeria’s National Office for Technology Acquisition and Promotion which endorse its fee and royalty payments to related companies similar to its foreign-owned competitors Nigerian Breweries and International Breweries who also make large payments to related companies abroad.
However, concern has been growing around the world that such payments create a risk of tax avoidance.
Controversial parent and Tax havens – Diageo Plc
Multinationals have been able to legally shift some of their profits into tax havens by placing assets there, such as intellectual property like brands or software, then charging their subsidiaries elsewhere to use these assets, with the result that less profit is reported for tax purposes in countries like Nigeria. It is also common for multinationals to procure goods and services through tax havens.
So, when a company makes large payments from Nigeria to related companies in tax havens, it is reasonable to be concerned that Nigeria may be losing tax revenues.
Guinness Nigeria’s accounts up until 2018 imply that most of its royalties and fees were paid to Diageo subsidiaries in Ireland, the Netherlands and the United States and to a UK company called Diageo Great Britain.
Ireland is the home of Guinness, so it is not unreasonable that Guinness Nigeria might source some services from there. However, Ireland is also a tax haven, as is the Netherlands. Diageo Great Britain’s accounts show that it pays a low rate of tax in the UK, while the accounts of the other subsidiaries have not been made public.
Although the Organisation for Economic Cooperation and Development is set to recommend new rules for taxing multinationals towards the end of 2020 which are meant to make it harder for profits to be shifted into tax havens, but, there are fears that these reforms may not work well for developing countries like Nigeria.
As a country heavily dependent on crude oil exportation for its major source of revenue, with the COVID-19 pandemic impact globally, Nigeria is undeniably experiencing an economic hiccup as the benchmark oil price of $57 per barrel which the country based its 10.6trillion naira ($34.6 billion) budget for 2020 dropped to $26 within three months since the outbreak of the virus.
This economic negative shift makes it all the more important that the state collects all necessary revenue from taxes (especially from corporate bodies) as much as possible at a time when public funds will be most needed to cope with the impact of the pandemic.
Guinness Nigeria parent company–Diageo plc–has a history of controversy over its use of tax havens which has been challenged in the past by tax authorities.
A recent Oxfam study of big UK companies’ tax payments from 1998 to 2017 concluded that Diageo “has consistently paid a very low cash tax rate” on its global profits. The report added: “Although there could be more than one reason for this, in the case of Diageo there is arguably strong evidence for tax avoidance being a factor.”
In addition, the company is reportedly paying an additional £143 million in tax in the UK in 2018 after being challenged over some of its internal transactions.
The government official that spoke with the reporter also confirmed that it would be almost impossible to determine the true position of the company tax status and the intricacies of its related parties transactions [from what is being reported in the company annual reports] as huge multinationals, including Guinness Nigeria, have people working in the tax service that ensures the tax position of the company remain good on paper for the company’s benefit considering the interest of stakeholders and other factors.
He also said that transactions between subsidiaries and their parent companies are not accorded the proper level of scrutiny required to avoid profit transfer.
“A whole desk is dedicated in the FIRS that works on the tax matters of Guinness Nigeria, 7up bottling company and the rest of the huge brewery firms. It is these guys that can tell you what is really going on with these companies, If there is a suspected case of profit transfer too, I am sure they are aware of this,” he said.
Efforts made by the reporter to speak with the investigative department of FIRS including sharing the files to findings on the company reports in terms of its dealings with its related parties was futile as no response was received from the other party.
This story was supported by Finance Uncovered, a UK-based journalism organisation.