British American Tobacco hit by £902 million tax assessments in the Netherlands

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According to the 2018 financial statement, British American Tobacco group has been hit by a £902 million tax assessments in the Netherlands.

The Dutch tax authority has issued a number of assessments on various issues across the years 2003-2016 in relation to various intra-group transactions. The assessments amount to an  aggregate net liability across these periods of £902 million covering tax, interest and penalties.
The Group has appealed against the assessments in full.
The Group believes that its companies have meritorious defences in law and fact in each of the above matters and intends to pursue each dispute through the judicial system as necessary. The Group does not consider it appropriate to make provision for these amounts nor for any potential further amounts which may be assessed in relation to these matters in subsequent years.
While the amounts that may be payable or receivable in relation to tax disputes could be material to the results or cash flows of the Group in the period in which they are recognised, the Board does not expect these amounts to have a material effect on the Group’s financial condition.”

According to Dutch media the conflict mainly concerns loans that the company issued from Dutch companies to subsidiaries abroad. Due to the interest paid by the subsidiaries on these loans, BAT reduced local profit and thus paid less income tax.

The interest income was sent directly from the Netherlands to a parent company in the United Kingdom, which formally had guaranteed the loans.

According to the 2018 financial statement a substantial tax assessment related to inter-company loans in the BAT group has also been issued by the South African Revenue Service.

In 2011, the South African Revenue Service (SARS) challenged the debt financing of British American Tobacco South Africa (BATSA) and reassessed the years 2006 to 2008. BATSA has objected to and appealed this reassessment. In 2014, SARS also reassessed the years 2009 and 2010. In 2015, BATSA filed formal Notices of Appeal and detailed objection letters against the 2009 and 2010 assessments and has reserved its right to challenge the constitutionality of the
assessment at a later date. In 2016, SARS filed a Statement of Grounds of Assessment and BATSA filed its Statement of Grounds of Appeal in early 2017. During 2018 both parties have filed their notices of discovery. Across the period from 2006 to 2010 the reassessments are for ZAR2.1 billion (£116 million) covering both tax and interest.




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