INVESTIGATIONS FOOD SYSTEMS

Big meat: Fat Subsidies, Thin Taxes

Amidst the most severe cost of living crisis in 40 years, our investigation reveals how Europe’s biggest meat companies avoid paying millions in tax while profiting from public subsidies.

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Some of Europe’s biggest meat companies have avoided paying tax on more than €200 million in what experts say are “aggressive tax avoidance” schemes.

The findings involve Anglo Beef Processors (ABP), owned by Irish billionaire Larry Goodman, as well as Pilgrim’s Pride and Moy Park which are both owned by Brazilian beef giant JBS, the world’s largest meat company.

Together the two groups control a third of the UK’s beef, and chicken production, and a quarter of its pork. They are leading suppliers to most major supermarkets, as well as fast food chains McDonalds, Nando’s and KFC. ABP controls 30% of the Republic of Ireland’s beef processing and up to half of the lamb processing on the island of Ireland. It operates across Europe, with plants and sales offices in Poland, France, Spain and the Netherlands.

Both groups used finance companies in European tax havens to book hundreds of millions of euros in profits. But these companies employ nobody, and were taxed at less than one percent. Corporate tax rates in the UK and Ireland – where the profits would otherwise have been taxed – are 19% and 12.5% respectively.

Dame Margaret Hodge, a UK Labour Party MP who heads the All Party Parliamentary Group on Tax, said the firms involved were “butchering” their responsibilities to society at a time when the majority of the population were struggling under the cost of living crisis.

She said: “A prosperous and equal society is one in which all companies and individuals pay their taxes in order to fund the public services that we all rely on,” she said.

“Yet this important investigation suggests that some of the UK’s biggest meat processing companies might be butchering that social contract by using complex corporate structures and overseas tax havens to avoid paying their fair share.”

The scheme works like this:

Step 1: the meat processing giant uses a finance company in another country like the Netherlands or Luxembourg, which offers favourable tax incentives, to borrow money at 0% interest from another company in the group.

Step 2: The finance company uses that interest-free cash to make loans – at interest – to companies in countries where the group has its processing plants and earns its revenues, such as the UK or Ireland.

Step 3: These companies can use the interest payments they make to the tax havens to reduce their taxable profits – and therefore the amount of tax they pay – in the UK and Ireland.

Step 4: The finance companies in Luxembourg and the Netherlands book the interest revenue they earn as pure profit, but pay almost no tax on it because of special tax rules.

Professor Reuven Avi-Yonah, an international and corporate tax law expert, said: “There is no question that this is aggressive tax avoidance in that you deduct the interest payments to shell companies that are meaningless in the sense that there is nothing there.”

“It’s not illegal, but it’s inconsistent with good corporate citizenship and the public, who are customers of all these meat companies, don’t like it,” he said.

Alex Cobham, director of the Tax Justice Network, said the schemes “give all the appearance of abusive tax avoidance, designed to prevent the declaration and taxation of profits where they actually arise.”

ABP and Pilgrim’s Pride Corporation said that they were fully tax compliant, and followed the law in all jurisdictions where they operated.

METHODS

Our investigation was based on an analysis of the annual reports of dozens of companies filed with corporate registries in the UK, Ireland, Netherlands, Jersey, and Luxembourg.

We used these public filings to map the corporate structures of Europe’s top ten leading meat companies to identify group companies which had been set up in tax havens such as the Netherlands and Luxembourg.

We then analysed company accounts to establish what tax rates the companies based in tax-havens were paying, and whether their revenues could have been used to reduce the taxable profits of operating companies in countries where the groups’ actual operations took place.

Two of the biggest meat companies stood out.

For JBS-owned Pilgrim’s Pride and Moy Park, we identified a holding company, Sandstone Holdings, based in Luxembourg.

Sandstone Holdings employs no staff but it recorded profits of $160 million (€162 million) between 2017 and 2020. These profits stemmed from interest payments made by the UK holding company for Moy Park and Pilgrim’s Pride, called Onix Investments UK. Sandstone received the cash it loaned to Onix from other group companies at zero interest. Between 2017 and 2020 Sandstone paid just $299,000 (€300,000) in tax on its $160 million profit, an effective rate of 0.19%

The UK-based Onix paid Sandstone $170 million (€167 million) in interest payments between 2017 and 2020. Because of these payments it made recurring trading losses, giving it a tax asset of $16 million (€15.6 million). In 2019 it used $10 million (€10 million) of this tax asset to reduce the tax paid by other group companies in the U.K.

ABP Group has a complex corporate structure with dozens of group companies across the E.U, UK and Jersey.

Its UK and Irish companies are “Unlimited”, which allows them to avoid publicly disclosing annual accounts.

Within ABP Group we identified a company based in the Netherlands, Trojaan Investering. Trojaan had no employees, but its accounts showed that it had made €161 million in profits between 2013 -2017, on which it paid an effective tax rate of 0.93%.

Trojaan earned the vast majority of its revenues from intercompany lending. It received more than €700 million in zero-interest loans from group companies based in Ireland and Jersey. It then loaned this money to other group companies at higher rates. These included a €114 million loan to ABP Foods (Ireland) at the benchmark European lending rate (Euribor) + 4% interest and a £63m loan to ABP UK at 5% interest. These companies could in turn deduct these interest payments from their taxable profits in Ireland and the U.K.

We calculated that Irish, UK and Dutch companies would have paid €42 million in interest payments to Trojaan over five years.

The official corporation tax rate in the Netherlands is 25.5%. However ABP appears to have taken advantage of Dutch tax rules which allowed it to deduct the hypothetical interest it would have paid on its zero interest loans, had they been interest bearing. In this way it reduced its taxable profits to virtually nil.

STORYLINES

Giant meat processors like Pilgrim’s Pride, Moy Park and ABP are amongst the few winners of Europe’s dysfunctional food system. While they do not benefit directly from most agricultural subsidies, the low price they pay farmers for livestock is sustained by public money.

Each year Big Meat benefits from billions of euros in taxpayer-funded subsidies given to livestock farmers. These subsidies help to bridge the gap between what it costs a farmer to raise livestock and the “farm gate price” they are offered by the meat processors.

Farming groups complain that the subsidies only support the processors, who themselves fail to pay a fair share of tax.

William Taylor, coordinator for Farmers for Action Northern Ireland, said: “If the processors continue to underpay producers, the government might just as well hand the subsidy money straight to the corporations’ tax haven companies rather than laundering it through farmers”.

In the Republic of Ireland cows now outnumber people as a result of decades of government policies encouraging farmers to rear cheap intensively-produced livestock for export around the world.

Billionaire businessman Larry Goodman built ABP Group into a meat processing giant on the back of these policies. In 2015 ABP became the first European meat company to secure a long-term beef contract in the United States. The company recorded annual revenues of €4 billion in 2021.

ABP’s factories have been picketed by farmers demanding a fair price for their meat, even in the face of injunctions which meant they risked imprisonment by continuing their protests.

As these companies have grown, they have swallowed up their competitors.

Giant processors have come to dominate the meat sector, giving producers less choice about who to sell their meat to. The meat processors involved in this story are key suppliers for virtually all major U.K retailers.

Moy Park processes around a third of the UK’s chickens. Based in Northern Ireland, it was bought by Brazilian giant Marfrig in 2008, before being sold to JBS, the world’s largest meat company, in 2015. JBS then bought the U.K’s largest pork processor, Tulip, in 2017, via Pilgrim’s Pride.

ABP is the U.K’s largest supplier of beef, and last year extended its reach further when it bought Northern Ireland based Linden Foods.


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