National No Smoking Day is an opportunity for smokers to try to break their deadly addiction, and desperately needed as cigarettes are forecast to kill 1 billion people globally during the 21st century. However, new research from Dr Rob Branston of the Centre for Business, Organisations and Society, and Professor Anna Gilmore, Director of the Tobacco Control Research Group at the University of Bath, reveals how little tobacco companies are held to account in meeting the costs they impose upon society.
The world’s four major tobacco companies - two of which have HQs in the UK – are paying minimal UK corporation tax despite enormous reported profits.
Tobacco companies and tax
We set out to identify profit earned and tax paid by the different tobacco companies operating in the UK, and extracted profit and tax data from company annual financial statements covering 2009 to 2016.
We focused on the four big tobacco companies operating in the UK: Imperial Brands and British American Tobacco (BAT), both headquartered in the UK; and the main UK subsidiaries of Philip Morris International (Philip Morris Limited) and Japan Tobacco International (Gallagher Ltd).
Key findings
We found that first, the reporting of corporation tax and company accounts in the UK is wholly inadequate:
- From 2014, Imperial Brands were allowed to stop reporting UK-adjusted operating profits; BAT and PMI have never done so; and none of the four transnational tobacco companies (TTCs) reported profit before tax in the UK.
- Companies have reorganised corporate structures to enable profits to be shifted overseas.
Second, the major tobacco companies operating in the UK are not paying corporation tax at anything like the rate they should be:
- In 2016, Imperial Brands, BAT, and Gallagher together made UK operating profits in excess of £1bn yet paid just £83.6m in corporation tax.
- Over the last 7 years during which time corporation tax has varied between 20% and 28%, Imperial Tobacco paid, at most, an estimated effective rate of 13% and often much lower; BAT paid almost no corporation tax, including four consecutive years from 2011-14 when they paid nothing at all.
Third, UK-based tobacco companies are paying significantly more corporation tax overseas:
- In 2016, Imperial Brands made £3.5bn in global-adjusted operating profits, paying £467m in overseas profit taxation. On their estimated UK earnings for the same period of £937m, it paid just £33m in UK corporation tax.
- In 2016, BAT made £6.2bn in global operating profit before tax, paying £1.4bn in overseas profit taxation. BAT UK earnings could not be determined due to inadequate reporting, but it paid only £7m in UK corporation tax.
Research implications
According to recent government analysis the cost of smoking to the economy was £11bn a year in England alone in 2017. In that year, £9.5bn was generated in excise duty from tobacco products in the UK, leaving a deficit of at least £1.5bn, not met by current insufficient corporation tax. It is our view that the government must better hold these companies to account for the deadly products they produce, and address the incentives they have for continuing to sell them.
Taxes are the best weapon we have available to reduce the harms caused by smoking, both in terms of encouraging smokers to stop and in recouping the enormous costs to society. In light of this, our study suggests that the UK needs far better reporting standards for corporation tax in order to hold tobacco companies responsible for the terrible cost of their deadly products. For instance, the publication of accurate country-by-country information on sales and profits would mean governments could better hold each company accountable in the specific markets in which they operate.
The government could also address the deficit in the taxes tobacco companies currently pay by considering an extension of the bank-focused, corporation tax surcharge to cover tobacco companies. This surcharge currently adds an additional 8% tax on the profits of banks but could easily be extended, thereby making the tobacco industry pay more towards the harm they cause, while also starting to change the profit incentives they face.
"Preventable diseases caused by tobacco products cost the NHS billions each year. The tobacco industry is dodging its obligation to contribute to the UK tax system leaving the public to pay for clearing up the mess caused by its products. The government should impose a tobacco industry levy, considering a surcharge on corporation tax or other mechanisms, to help fund services to help smokers quit."
George Butterworth, Cancer Research UK’s policy manager
Notes:
- The Tobacco Control Research Group at Bath is a partner of STOP: Stopping Tobacco Organizations and Products. STOP is a new global tobacco industry watchdog whose mission is to expose the tobacco industry strategies and tactics that undermine public health.
- To access the full study, ‘The Failure of the UK to Tax Adequately Tobacco Company Profits’ see http://dx.doi.org/10.1093/pubmed/fdz004; published Wednesday 6 February 2019.
- We acknowledge that the study is limited by the available public data on tobacco company profitability and tax liabilities/allowances, both globally and for the UK market in particular. The work was supported by a Cancer Research UK grant (C50816/A25745). The funder played no role in the study design, analysis and interpretation of data, writing, or the decision to submit this article for publication.
Header image The Killing Fields by Matthias Weinberger, published under licence CC BY-NC-ND 2.0
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