A paper on case study: Brewing up controversy

ISSUES IN ACCOUNTING EDUCATION American Accounting Association Vol. 30, No. 4 DOI: 10.2308/iace-51178 2015 pp. 311–327

Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning

Megan F. Hess and Raquel Meyer Alexander

ABSTRACT: This instructional case explores the ethical issues surrounding the corporate tax-planning and tax-avoidance strategies of multinational organizations. Drawing on the real-world experiences of SABMiller, one of the world’s largest beverage companies, this case provides a launching point for students to consider the ethics of corporate tax planning. The ethics of multinational tax practices, especially the use of tax havens, has recently become the focus of media and legislative debate in both the U.S. and the U.K., and many well-respected companies, such as General Electric, Apple Inc., and Starbucks are now feeling the pressure to reform. In a post-case learning assessment, students demonstrated significant improvement in their understanding and indicated that they enjoyed discussing this controversial issue. The ‘‘Implementation Guidance’’ section and Teaching Notes offer guidance for in-class discussion of the ethical and tax issues in this case.

Keywords: corporate tax planning; multinationals; ethics; tax havens.

INTRODUCTION

M aria Smith1 put down her copy of The Guardian newspaper with a sigh. The headline read, ‘‘Brewer Accused of Depriving Poor Countries of Millions in Revenue,’’ (Lawrence 2010). The article was written about Maria’s employer, SABMiller, and it

presented her efforts to design and execute a sophisticated global strategy for minimizing the

company’s tax payments as nothing less than a ‘‘tax dodge.’’ Maria had been recruited from America to work for SABMiller in London, based on her talent for corporate tax planning.

Suddenly, her hard work had become the focus of a global debate over the ethics of such practices.

How should SABMiller respond to these accusations? Were these critics right to question

SABMiller’s practices? As the protesters began to gather in front of SABMiller’s London office

Megan F. Hess is an Assistant Professor and Raquel Meyer Alexander is an Associate Professor, both at Washington and Lee University.

Supplemental materials can be accessed by clicking the links in Appendix C.

Published Online: June 2015

1 Although the organizations referenced in this case study are real, we have created a fictional protagonist to explore the individual-level, decision-making challenges presented by this issue.

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brandishing ‘‘Stop Corporate Tax Dodging’’ signs, Maria knew that she had an important decision ahead. The company would be looking to her to make an informed recommendation to the board of

directors about whether SABMiller should change its approach to tax, and if so, how.

BACKGROUND ON SABMILLER

In 2010, SABMiller plc was one of the world’s largest brewers and home to many popular

brands, including Pilsner Urquell, Peroni Nastro Azzurro, Miller Genuine Draft, and Grolsch.

Headquartered in London, the company employed more than 70,000 people and had operations in

75 different countries around the globe (SABMiller 2010). Despite this global scale and reach,

SABMiller recognized that brewing beer was ‘‘essentially a local business: beer brands are typically rooted in local communities and have their own rich histories and heritage’’ (SABMiller 2010, 5). Thus, SABMiller worked to leverage the international appeal of its most popular brands while also

cultivating a portfolio of local brands that might benefit from the skills and efficiencies that had

fueled the company’s past success.

SABMiller’s vision was to be the ‘‘most admired company in the global beer industry,’’ (SABMiller 2010, 2). The company took its global reputation very seriously and was pleased that in

Fortune’s 2010 ranking of the world’s most admired companies, SABMiller had risen to third place in the worldwide beverage sector (Fortune 2010). To further advance its global reputation, SABMiller articulated its five core values as follows: ‘‘Our people are our enduring advantage; accountability is clear and personal; we work hard and win in teams; we understand and respect our

customers and consumers; and our reputation is indivisible’’ (SABMiller 2010, 2). SABMiller was particularly proud of its efforts in developing nations. For example, it

announced in December 2009 that 8.45 percent of the shares in its South African subsidiary would

be placed under black ownership as part of the company’s commitment to the Broad-Based Black

Economic Empowerment program in South Africa. The ‘‘Zenzele transaction,’’ as it was called, created some 40,000 new shareholders among SAB employees and qualifying retailers, and it also

created a charitable foundation to benefit the wider South African community (SABMiller 2010,

40). SABMiller’s chairman articulated the company’s philosophy toward corporate social

responsibility as follows: ‘‘We believe that the most effective way for SABMiller to meet its sustainable development objectives is by maximizing the success of the business’’ (SABMiller 2010, 40). To that end, SABMiller hired locally, sourced locally, and worked with local suppliers to

develop the quality and type of materials it needed for its operations wherever it could.

According to internal performance measures used by the company, in 2010 SABMiller earned

$1.9 billion in profits, posting revenue gains of 4 percent and an earnings per share (EPS) increase

of 17 percent. SABMiller attributed much of the growth in earnings to reductions in the company’s

effective tax rate (SABMiller 2010, 1). Table 1 compares SABMiller’s 2010 financial performance

according to International Financial Reporting Standards (IFRS) with those of its primary

competitors, Anheuser-Busch InBev and Heineken Holding N.V. These IFRS-adjusted results paint

a much bleaker picture for SABMiller. Indeed, the company under-performed relative to its

competitors in nearly every category. This comparison also suggests that both Anheuser-Busch and

Heineken were even more aggressive in their tax-avoidance efforts than SABMiller.

SABMILLER’S CORPORATE TAX PLANNING

The Guardian newspaper article giving Maria such heartburn drew upon a lengthy report written by a tax advocacy group called ActionAid (2010). ActionAid is a non-governmental

organization (NGO) headquartered in Johannesburg, South Africa with a mission of ending poverty

and injustice. ActionAid first became interested in SABMiller when the brewer bought Accra

Brewery Limited, West Africa’s first brewery and the pride of Ghana. ActionAid was concerned

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that despite robust growth in sales, SABMiller had paid no corporate income taxes in Ghana in

three out of the four years for the period 2007 through 2010. See Appendix A for the income

statement of Accra Brewery Limited.

Using SABMiller’s own financial reports and the discoveries of investigators on the ground in

Ghana, ActionAid published their findings in a report they called ‘‘Calling Time: Why SABMiller

Should Stop Dodging Taxes in Africa’’ (ActionAid 2010). ActionAid revealed how SABMiller,

like many multinational corporations, reduced its corporate effective tax rate by following a number

of tax strategies that exploited legal loopholes and took advantage of differences in the tax codes

across the globe. ActionAid summarized the four ways that SABMiller avoided paying taxes as

follows.

Tax Avoidance Strategy 1: Tax Havens

One way that companies avoid paying corporate taxes is by shifting profit to tax havens, a term

used to describe countries like Bermuda and Mauritius that charge little to no taxes on corporations.

According to the Organisation for Economic Co-operation and Development (OECD 2014), tax

havens have the following characteristics: (1) no or only nominal taxes; (2) lack of effective

exchange of information; and (3) lack of transparency in the operation of the legislative, legal, or

administrative provisions.

Multinationals can reduce their tax payments in high-tax countries by setting up favorable

transfer-pricing arrangements between different subsidiaries in different locations around the

globe.2 SABMiller’s financial statements indicate that it has subsidiary holding companies in

TABLE 1

Comparison of 2010 Financial Results (in millions of US$)

SABMillera Anheuser-Buschb Heinekenc

Revenues $18,020 $36,297 $25,813

Annual increase (decrease) �3.7% �1.3% 9.7% Profit from Operations 2,619 11,165 3,653

Annual increase (decrease) �20.2% 8.9% 40.1% Income tax expense 848 1,920 638

Effective tax rate 29.0% 25.0% 20.3%

Net Profit 2,081 5,762 2,509

Annual increase (decrease) �3.5% �2.0% 37.3% Basic earnings per share 1.23 2.53 4.21

Annual increase (decrease) �2.1% �13.1% 26.4% Return on equity 10.1% 16.3% 14.9%

Return on assets 5.5% 5.0% 5.9%

a SABMiller (2010). b Anheuser-Busch InBev (2010). c Heineken Holding N.V. (2010).

2 A subsidiary is a company that is effectively owned or controlled by a parent company, and a transfer-pricing arrangement is an agreement to buy and sell goods, services, or intangible property with a subsidiary or related company (OECD 2014). The IRS reports that 17 percent of the uncertain tax positions reported in 2013 involved transfer pricing, second only to research credits (Internal Revenue Service [IRS] 2015).

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several tax havens, including Mauritius and the British Virgin Islands (see Appendix B for a listing

of the locations of SABMiller’s principal subsidiaries). In principle, the transfer price agreed to by

the subsidiary should match either what the seller would charge an independent customer or what

the buyer would pay an independent supplier. In practice, it is very difficult for outside parties to

determine the fairness or the legitimacy of transfer-pricing arrangements. Since transfer-pricing

arrangements are intra-company in nature (i.e., between subsidiaries of the same parent company),

the details of such arrangements cannot be ascertained by examining the consolidated financial

results of the parent company and, thus, are not visible to the public.

Multinationals lower their tax burden by setting up transfer-pricing arrangements between

subsidiaries in different tax jurisdictions that effectively leave the majority of expenses (and thus

the smallest amount of income) on the books of subsidiaries in high-tax rate countries while shifting

the majority of revenues (and thus the highest income) to the books of the subsidiary in the tax

haven. As an example, Accra Brewery reported that it purchased supplies, such as malt, maize, and

sugar from another SABMiller subsidiary located in Mauritius, a tax haven. While these supplies

were most likely sourced locally in Ghana and never left the country, title to these goods would be

transferred first to the Mauritius subsidiary, acting as a middleman, and then ultimately ‘‘sold’’ to Accra Brewery. This transfer-pricing arrangement keeps the expenses associated with purchasing

these brewing supplies on the books of the subsidiary in the high-tax country (Ghana) while shifting

the revenues associated with selling these same supplies on the books of the subsidiary to the

relatively low-tax country (Mauritius).3

Tax Avoidance Strategy 2: Going Dutch with Royalties

‘‘Going Dutch’’ is a tax strategy whereby a multinational corporation establishes a subsidiary in The Netherlands to hold all of their trademarks and brand names. Because The Netherlands allows

companies to write down the value of their trademarks against all royalty revenue collected for the

use of these trademarks and the tax rate on royalty income is low, firms pay almost no taxes on

these royalties if they are held on the balance sheet of the Dutch subsidiary. As indicated in the

notes to their financial statements, in 2010 SABMiller had several holding companies in The

Netherlands, with one explicitly designated as ‘‘Trademark Owner’’ (see Appendix B for a listing of the locations of SABMiller’s principal subsidiaries).

ActionAid estimated that, in 2009, SABMiller’s Dutch subsidiary collected £43 million

(US$68.8 million) in royalty payments from SABMiller’s African operations. These payments

drastically reduced the profitability of the African operations and thus cut SABMiller’s tax

obligations by approximately £10 million (US$16 million). ActionAid criticized SABMiller’s use

of the ‘‘going Dutch’’ tax-avoidance scheme not only because this minimized SABMiller’s tax payments to Ghana and other African nations, but also because it transferred ownership of local

brands outside of the countries where they were invented, brewed, and consumed.

Tax Avoidance Strategy 3: Management Fees to Switzerland

Another common corporate tax-avoidance strategy is to set up a subsidiary that offers

‘‘management services’’ in a country that does not tax revenues associated with such services. By charging other subsidiaries of the multinational for using these Switzerland-based management

services, SABMiller effectively reduces the profits available for taxation at the non-Swiss

3 This is a simplified example of a transfer-pricing arrangement. In reality, the terms and the tax obligations associated with these transactions may be much more complex. For instance, companies that are considered non-resident in a country may have income tax liabilities associated with sales sourced in that country. The profits associated with these sales, however, can be offset by business deductions such as those discussed elsewhere in this case.

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subsidiary level. ActionAid estimates that SABMiller’s payments for management services to its

Swiss subsidiary reduced its profits in Africa and India by £47 million (US$75.2 million) and thus

cut its taxes to the governments of these developing countries by £9.5 million (US$15.2 million).

Tax Avoidance Strategy 4: Intra-Company Lending

The last tax-avoidance strategy uncovered by ActionAid involves intra-company lending. By

borrowing funds to finance capital projects from a subsidiary located in a tax haven rather than

using traditional lenders, the multinational not only lowers its tax burden, but it also avoids making

interest payments to a third-party, such as a local bank. In this tax-avoidance strategy, the

‘‘borrower’’ in the high-tax country receives capital from the ‘‘lender’’ in the tax haven country. These borrowed funds are then repaid to the lender as interest expense, which lowers the profits and

the associated taxes paid in the high-tax country. These interest payments are received in the tax

haven as interest income, thus raising the profits in the country where they are not subject to

taxation. ActionAid estimates that SABMiller avoided £79,000 in taxes (US$121,600) in Ghana

due to intra-company lending.

THE ETHICS DEBATE SURROUNDING CORPORATE TAX PLANNING

Maria started preparing for her upcoming meeting with the board by studying the ethics debate

surrounding corporate tax planning. She learned that concerns about the ethics of corporate tax

planning began to enter the sphere of public debate in the mid-2000s. In 2005, an advocacy group

called The Tax Justice Network released a report called ‘‘Tax Us If You Can’’ highlighting the use of tax havens by multinationals and the trillions of dollars in tax revenues that go uncollected each

year (Tax Justice Network 2005). The Tax Justice Network and other advocacy groups like

ActionAid were becoming increasingly vocal in their efforts to reduce poverty and inequality by

bringing attention to corporate tax practices, advocating for policy changes, and mobilizing citizens

to pressure governments and corporations for reform.

Maria realized that in order to understand the position of her critics, she needed to re-examine

the role of taxes in society. It had been a long time since Maria thought about the purpose of

taxation, but she remembered that by definition, taxes are collected to support a government and

fund public services that are shared by its citizens, such as roads, libraries, schools, fire

departments, and police forces. Taxes are also used to correct for market failures by re-pricing

certain goods and services to include the costs of negative externalities, such as pollution.

Governments sometimes use tax credits to encourage certain types of spending that are deemed to

be beneficial to society, such as buying an electric vehicle, or at the corporate level, investing in

research and development activities. Alternately, governments can add taxes to discourage harmful

behaviors, such as tobacco use. In some countries, taxes are also used to redistribute income and

wealth. In short, without a viable tax system to build and maintain its public services, a country

could not provide a foundation for the growth and prosperity of its citizens and its economy.

Maria’s attitudes toward tax were largely shaped by her upbringing in America. Despite all of

the good that comes from them, few Americans take joy in paying their taxes; rather, most

Americans consider taxes to be a burden and a cost that can and should be minimized wherever

possible. Folktales, such as the story of Robin Hood, portray the tax collector as the villain, and a

common saying in America is that ‘‘nothing is certain except death and taxes.’’ Taxes have become such a contentious political issue that elections hinge on the candidate’s perceived attitudes toward

tax policy. It seemed to Maria that everyone loves to hate taxes, which perhaps explains why

concerns about the ethics of tax avoidance had, until recently, avoided the spotlight.

Maria’s research uncovered a few arguments that supported SABMiller’s current approach to

tax. Some proponents of corporate tax-avoidance efforts argue that the presence of tax havens

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encourages countries to lower their tax rates and implement pro-growth programs in order to

compete for capital (Mitchell 2013). Indeed, corporate effective tax rates have been declining

around the globe in the last decade (KPMG 2013). Proponents of corporate tax avoidance also

argue that any legal efforts to avoid ‘‘double taxation’’4 are justifiable. Despite these arguments in favor of continuing SABMiller’s current approach to tax, Maria’s research also revealed that the

issue was far more complex than she had previously considered.

Critics of corporate tax planning expressed concern that these tax-avoidance opportunities are

biased toward large multinational corporations and wealthy private investors who can afford to set

up offshore companies and hire the legal and tax experts necessary to exploit tax loopholes. They

argued that it is unfair that small businesses already struggling to compete with these larger firms

and their economies of scale cannot similarly benefit from global tax competition. Some profitable

multinationals had set up such efficient tax-avoidance systems that they enjoyed a negative effective income tax rate. For instance, General Electric had a �45.3 percent effective tax rate in 2010, DuPont had�3.4 percent effective tax rate in 2010, and Verizon had a�2.9 percent effective tax rate in 2010 (Institute on Taxation and Economic Policy [ITEP] 2011). Critics of corporate tax

avoidance also pointed out that when companies do not pay taxes in the jurisdictions where they do

business, it creates a ‘‘free rider problem’’ where corporations are benefitting from public goods without paying their share. Maria understood how critics could perceive the tax advantages enjoyed

by large multinational corporations to be unfair and unjust.5 Maria’s research also revealed the

harmful trickle-down effects of corporate tax planning at a societal level. As corporate tax

collections have fallen over the last several decades, many governments have chosen to make up for

the decline in corporate tax revenue by increasing taxes on individual consumption, often using

sales or ‘‘value added tax’’ (VAT). Sales taxes are charged on everyone, regardless of their household income, so this shift to consumption-based taxation has had a disproportionate effect on

the poor. Moreover, because collections from sales taxes have failed to keep pace with the declines

in corporate tax collections, the poor have also suffered from austerity measures and reduced

government services in areas where they need help most—education, healthcare, and security.

Before making a decision, Maria thought it prudent to re-read the professional tax ethics

standards issued by the Chartered Institute of Taxation (CTA), the leading professional body in the

United Kingdom for advisors dealing with all aspects of taxation. These standards reminded Maria

that all tax professionals are governed by the fundamental principles of integrity, objectivity,

professional competence and due care, confidentiality, and professional behavior. Guidance from

the CTA also recommended that firms disclose information about corporate tax arrangements and

how they work to the relevant U.K. tax authority (the HM Revenue & Customs office), and it

further described the tests used by this authority to determine tax-avoidance schemes (CTA 2010).

According to this guidance ‘‘both UK and non-UK based promoters are subject to the disclosure rules but they only apply to the extent that the scheme enables or is expected to enable a UK tax

advantage to be obtained.’’ After reflecting upon the CTA guidance and the various arguments for and against corporate

tax avoidance, Maria concluded that at a minimum, SABMiller would need to become more

transparent about its corporate tax-planning practices going forward. The OECD and the United

Nations were actively promoting voluntary standards on tax transparency and information exchange

(OECD 2010). In America, a new law called the Foreign Account Tax Compliance Act (FATCA;

4 Double taxation occurs when the goverment collects tax revenues multiple times on the same dollar in earnings. For example, a corporation pays income tax on its earnings and then its investors pay taxes again on these earnings when they are distributed as dividends.

5 For a particularly witty example of such criticisms, see Jon Stewart of The Daily Show at: http://thedailyshow.cc.com/ videos/laxhfd/i-give-up---pay-anything---

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IRS 2014) had just been passed, which required increased reporting by banks and investment funds

about the foreign holdings and off-shore assets of U.S. taxpayers. It seemed to Maria that the

political and regulatory movement for global transparency and additional corporate tax reporting

was gaining momentum and that, sooner or later, SABMiller would have to disclose where and how

much tax it was paying around the globe.

THE DECISION

Maria knew that she had a tough decision ahead of her. What should she do about the criticisms

raised by ActionAid and the public relations crisis it had created? Were SABMiller’s tax strategies

justifiable considering their widespread use, or did her company have a moral obligation to stop

taking measures to avoid paying corporate taxes? Maria also wondered how she should weigh her

responsibility to SABMiller’s investors and their concerns about declining earnings against her duty

see to the needs of employees, customers, and local communities who could benefit from a stronger

tax system and tax-supported programs. Was there a way to make both investors and other

stakeholders happy at the same time?

Maria was also acutely aware of her role in all of this. She had been rewarded when she had

reduced the tax liabilities and the effective tax rate reported to shareholders. But considering all of

the bad press SABMiller was getting, both her reputation and the reputation of the company hung in

the balance. She now had to decide how to respond to ActionAid’s criticisms, and more

importantly, she needed to determine what SABMiller’s approach to tax would be going forward.

CASE REQUIREMENTS

1. What principles are involved in this situation? Start with not only the written standards that

apply to this situation (i.e., the CTA standards), but also consider the un-written rules of

appropriate conduct that guide our behavior. How should Maria weigh the relative

importance of each of these principles in making her recommendations for how to move

forward?

2. Companies as well as individuals can demonstrate character in their ability to act in ways

that support their expressed corporate values. Prepare a point-by-point comparison of the

ways in which SABMiller’s current tax practices either support or conflict with its corporate

values. Overall, would you say that SABMiller’s current tax practices are consistent or

inconsistent with its corporate values?

3. Identify the relevant stakeholders in this situation.6 What are the long-term consequences

for stakeholders if SABMiller continues with its current tax practices? Note: You may

discuss consequences in general terms, such as positive, negative, neutral, or unknown,

since you do not have enough information to quantify these impacts at this time. Do the

positive consequences appear to outweigh the negative ones? Can you justify the negative

consequences in ways that align with the company’s values?

4. Using Accra Brewing’s income statement (Appendix A), identify the income statement

items that would be impacted by each the four tax-planning strategies used by SABMiller.

5. What do you think SABMiller’s approach to tax should be going forward? How can

SABMiller better align its actions with its values, create more positive outcomes for its

stakeholders, and/or mitigate negative consequences for its stakeholders?

6 Stakeholders are people who or groups that can affect or are affected by SABMiller’s actions, such as employees, customers, investors, suppliers, and local communities (Freeman 1984).

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REFERENCES

Accra Brewery Limited. 2010. Annual Report to Shareholders. Available at: http://www.gse.com.gh/ privatecontent/File/2010/PR%20-%20172%20ABL%20audited%20Financial%20Statements%20for

%20the%20year%20ended%20%20March%202010.pdf

ActionAid. 2010. Calling Time: Why SABMiller Should Stop Dodging Taxes in Africa. Available at: http:// www.actionaid.org.uk/sites/default/files/doc_lib/calling_time_on_tax_avoidance.pdf

Anheuser-Busch InBev. 2010. Annual Report to Shareholders. Available at: http://www.ab-inbev.com/ content/dam/universaltemplate/abinbev/pdf/investors/annual-and-hy-reports/2010/AB_InBev_AR10.

pdf

Chartered Institute of Taxation (CTA). 2010. Professional Conduct in Relation to Taxation. London, U.K.: CTA. Available at: http://old.tax.org.uk/attach.pl/8936/10564/DOTASsdltGuidance.pdf

Fortune. 2010. World’s Most Admired Companies. Available at: http://money.cnn.com/magazines/fortune/ mostadmired/2010/industries/4.html

Freeman, R. E. 1984. Strategic Planning: A Stakeholder Approach. Boston, MA: Pitman. Heineken Holding N. V. 2010. Annual Report to Shareholders. Available at: https://bib.kuleuven.be/files/

ebib/jaarverslagen/HEINEKEN_2010.pdf

Institute on Taxation and Economic Policy (ITEP). 2011. Corporate Tax Payers and Corporate Tax Dodgers: 2008–2010. Available at: http://www.itep.org/pdf/Corporatetaxdodgers.pdf

Internal Revenue Service (IRS). 2014. Foreign Account Tax Compliance Act. Available at: http://www.irs. gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-(FATCA)

Internal Revenue Service (IRS). 2015. UTP Filing Statistics. (October 21, 2014). Available at: http://www. irs.gov/Businesses/Corporations/UTPFilingStatistics

KPMG. 2013. Average Corporate Tax Rates Continue Decline, Indirect Tax Rates Rise. Available at: http:// www.kpmg.com/sg/en/pressroom/pages/pr20130221.aspx

Lawrence, F. 2010. Brewer accused of depriving poor countries of millions in revenue. The Guardian (November 28).

Mitchell, D. 2013. Tax havens allow economic vitality. New York Times (April 11). Available at: http:// www.nytimes.com/roomfordebate/2013/04/11/global-tax-dodge-or-economic-boon/tax-havens-

allow-economic-vitality

Organisation for Economic Co-operation and Development (OECD). 2010. Promoting Transparency and Exchange of Information for Tax Purposes. (January 19). Available at: http://www.oecd.org/ newsroom/44431965.pdf

Organisation for Economic Co-operation and Development (OECD). 2014. Glossary of Tax Terms. Available at: http://www.oecd.org/ctp/glossaryoftaxterms.htm

Tax Justice Network. 2005. Tax Us If You Can. Available at: http://www.taxjustice.net/cms/upload/pdf/ TUIYC_2012_FINAL.pdf

SABMiller. 2010. Annual Report to Shareholders. Available at: http://www.sabmiller.com/docs/default- source/investor-documents/reports/2010/ financial-reports/annual-report-interactive-2010.

pdf?sfvrsn¼2

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APPENDIX A

Accra Brewery Limited Income Statementa

2010 2009 2008 2007

Gross Revenue 69,380 50,214 39,485 38,495

Excise duty (12,927) (9,841) (9,031) (8,884)

Sales tax/VAT (9,050) (6,732) (5,235) (5,106)

Net Revenue 47,403 33,641 25,219 24,505

Materials sourcing 27,648 18,406 11,190

Staff cost 2,309 1,634 1,415

COGS 29,957 20,040 12,605

Freight and distribution 3,644 3,563 1,949

Advertising and promotion 3,749 2,870 2,413

Selling & distribution expenses 7,393 6,433 4,362

Other administrative expenses 10,156 8,644 6,448

Operating profit (loss) (103) (1,476) 1,804

Other income 506 12 175

Net finance cost (7,216) (963) (303)

Before tax profit (loss) (6,813) (2,427) 1,676 326

Tax credit (expense) 1,142 187 (790) 11

After tax profit (loss) (5,671) (2,240) 886 337

All amounts shown in thousands of Ghana Cedis. a Accra Brewery Limited (2010). The income statement is available as a downloadable Excel file, see Appendix C.

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in A

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io n

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N )

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— 9

9 %

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v ec

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co L

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(c on

ti nu

ed o

n n

ex t

p a

g e)

320 Hess and Alexander

Issues in Accounting Education Volume 30, No. 4, 2015

A P

P E

N D

IX B

(c o

n ti

n u

ed )

N a

m e

C o

u n

tr y

o f

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rp o

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m p

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%

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.K .)

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g 1

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% 6

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tm en

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—

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% —

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ts w

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(P ty

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% 2

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(P ty

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td B

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/S o

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% 3

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C o

m p

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(P ty

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td L

es o

th o

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w in

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%

(c on

ti nu

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n n

ex t

p a

g e)

Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning 321

Issues in Accounting Education Volume 30, No. 4, 2015

A P

P E

N D

IX B

(c o

n ti

n u

ed )

N a

m e

C o

u n

tr y

o f

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rp o

ra ti

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n ci

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l A

ct iv

it y

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v e

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rd in

a ry

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a re

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p it

a l

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1 0

2 0

0 9

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en zo

ri B

o tt

li n

g C

o m

p an

y U

g an

d a

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ft d

ri n

k s

8 0

% —

S o

u th

er n

S u

d an

B ev

er ag

es L

td S

u d

an B

re w

in g

8 0

% 8

0 %

S w

az il

an d

B re

w er

s L

td S

w az

il an

d B

re w

in g

3 7

% 3

7 %

T an

za n

ia B

re w

er ie

s L

td b

T an

za n

ia B

re w

in g

3 3

% 3

3 %

V o

lt ic

In te

rn at

io n

al In

c B

ri ti

sh V

ir g

in Is

la n

d s

H o

ld in

g co

m p

an y

8 0

% 8

0 %

V o

lt ic

(G H

) L

td G

h an

a S

o ft

d ri

n k

s 8

0 %

8 0

%

V o

lt ic

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er ia

L td

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er ia

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ft d

ri n

k s

8 0

% 8

0 %

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b ia

n B

re w

er ie

s p

lc b

Z am

b ia

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w in

g /S

o ft

d ri

n k

s 5

4 %

5 4

%

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an O

p er

at io

n s

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B M

il le

r A

si a

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T h

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et h

er la

n d

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o ld

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co m

p an

y 1

0 0

% 1

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%

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B M

il le

r (A

si a)

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H o

n g

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n g

H o

ld in

g co

m p

an y

1 0

0 %

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0 %

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il le

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& A

2 )

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it ed

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ld in

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d ia

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p an

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w er

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% 9

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B M

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ri v

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1 0

0 %

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0 %

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am C

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p an

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td V

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am B

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1 0

0 %

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O p

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td S

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fr ic

a B

re w

in g

/S o

ft d

ri n

k s/

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ld in

g co

m p

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1 0

0 %

1 0

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e S

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th A

fr ic

an B

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m s

(P ty

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td S

o u

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a H

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fa rm

in g

1 0

0 %

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th A

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an B

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s M

al ti

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s (P

ty )

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u th

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ts te

rs 1

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% 1

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p le

ti se

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o u

th A

fr ic

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ty )

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1 0

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p er

at io

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an d

re si

d en

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x p u rp

o se

s in

th e

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ed K

in g d o m

. b

L is

te d

in co

u n tr

y o f

in co

rp o ra

ti o n .

c T

h is

en ti

ty w

as m

er g ed

in to

B av

ar ia

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o n

A p ri

l 2 7 ,

2 0 0 0 .

d S

A B

M il

le r

P o la

n d

B V

, a

w h o ll

y o w

n ed

su b si

d ia

ry o f

th e

g ro

u p ,

h o ld

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p er

ce n t

o f

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p an

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iw o w

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ch 3 1 ,

2 0 1 0

(M ar

ch 3 1 ,

2 0 0 9 :

7 1 .9

p er

ce n t)

.

322 Hess and Alexander

Issues in Accounting Education Volume 30, No. 4, 2015

APPENDIX C

AccraBrewery_Income_Statement: http://dx.doi.org/10.2308/iace-51178.s01

SABMiller_2010_Annual_Report: http://dx.doi.org/10.2308/iace-51178.s02

AccraBrewery_2009_Annual_Report: http://dx.doi.org/10.2308/iace-51178.s03

AccraBrewery_Audited_Financial_Statements: http://dx.doi.org/10.2308/iace-51178.s04

Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning 323

Issues in Accounting Education Volume 30, No. 4, 2015

CASE LEARNING OBJECTIVES AND IMPLEMENTATION GUIDANCE

Learning Objectives

The primary objective of this case is to help students practice thinking critically about the

ethical issues related to corporate tax planning. Students also engage in ethical decision making by

identifying and evaluating trade-offs among corporate stakeholders and brainstorming approaches

to corporate tax planning that better align with a company’s mission and values. Students fulfill

these learning objectives by reading the case, preparing the required questions, and discussing or

presenting their analyses in class.

Implementation Guidance

We have used this case in undergraduate courses in both corporate tax and business ethics,

although the case would work equally well at the graduate-level in these areas. In the context of

teaching corporate tax, this case not only reviews important tax concepts like transfer-pricing

arrangements and subsidiary structures, but it also provides a launching point for discussing the

ethical duties of a tax consultant and the responsibilities of a corporation as it pertains to paying

corporate taxes. Familiarity with the philosophical foundations of business ethics is not a necessary

pre-requisite for discussing this case. The Teaching Notes provide specific guidance for instructors

to help them facilitate the in-class discussion of the ethical aspects of the case.

Due to the length of the case, we recommend that students read the case and prepare written

responses to the case requirement questions before class. Students report that they spent 1–3 hours

reading and preparing the case. To facilitate teamwork, brainstorming, and creative thinking, the

instructor may wish to assign the students to discussion groups and have them turn in their written

responses as a group. Instructors will need between 55 and 85 minutes to facilitate class discussion

of this case. We recommend that this discussion begin with a brief introduction to the ‘‘principles, character, consequences’’ ethical decision-making framework (Wicks, Harris, and Parmar 2003). Between 5–10 minutes should also be reserved at the end of the class session so that the instructor

can share information about what SABMiller actually did in response to ActionAid’s (2010)

allegations and discuss some recent developments in corporate tax policy.

The majority of class time should be dedicated to a discussion of the first three case

requirement questions that apply the ethical decision-making framework to the case (15–30

minutes). Instructors with shorter class periods may choose not to discuss Case Requirement 4,

which asks students to identify the effects of corporate tax avoidance on the income statement. We

have used two different approaches for facilitating the discussion of student recommendations for

SABMiller (Case Requirement 5). For shorter class periods, the instructor may ask for a few student

volunteers to share their recommendations with the class. With this individual approach, 5–7

students can share their recommendations in a 20-minute time period. If the instructor has more

time to devote to the discussion of student recommendations, he or she may want to break the

students into small groups to prepare a two-minute presentation of their best idea. This group

approach facilitates brainstorming and helps to engage students who are more comfortable speaking

up as part of a team. Using the group approach, students need 10 minutes to prepare and 2–3

minutes to present per group.

Advanced Teaching Option

Instructors who wish to delve deeper into the financial statements of either SABMiller or its

subsidiary, Accra Brewery, can download the SABMiller Annual Report and the Accra Brewery

Annual Report and audited financial statements for use as additional teaching materials (see

Appendix C in the Case).

324 Hess and Alexander

Issues in Accounting Education Volume 30, No. 4, 2015

Evidence of Efficacy

To assess student learning, we conducted two different evaluations. First, we assessed

improvements in students’ knowledge of the case topics by having undergraduate corporate tax

students answer open-ended questions and statements, such as ‘‘List some of the ethical issues

associated with corporate tax planning,’’ before and after the case assignment. Table 2 reports the

respective means and standard deviations of the grades assigned to students’ responses for these

open-ended survey items;7 t-tests comparing the post-case assessment means to the pre-case

assessment means for each learning assessment item reveal a significant improvement in student

knowledge of the topics covered in this case.

We also assessed student perceptions of their learning by asking a larger sample of

undergraduate students in both business ethics and corporate tax classes to rate their perceived

learning benefits and enjoyment of the case using a five-point Likert scale. Table 3 reports the

respective means and standard deviations of students’ responses to these 15 survey items. As noted

in the table, t-tests of each mean to a neutral score of 3 result in a two-tailed p-value of , 0.0001 for

each item, thus suggesting that, on average, students perceived that they benefitted greatly from the

case.

TABLE 2

Graded Assessment of Student Survey Responses Regarding Knowledge of Case Topicsa

Survey Item

Pre-Case Assessment

Post-Case Assessment

Mean (Std. Dev.) n

Mean (Std. Dev.) n

List some of the ethical issues associated with corporate tax planning. 1.04 51 2.00 31

(0.94) (0.63)

What role do professional ethics standards play in ethical decision

making?

0.65 51 1.63 30

(1.04) (0.81)

Briefly define principles in the context of ethical decision making. 0.55 49 1.85 27

(0.91) (0.46)

Briefly define character in the context of ethical decision making. 0.67 49 1.79 29

(0.92) (0.68)

Briefly define stakeholders in the context of ethical decision making. 1.06 49 2.00 28

(1.03) (—)

Identify three techniques that companies use to shift profits to low-tax

jurisdictions.

0.65 48 2.59 29

(0.84) (0.50)

a Each question’s post-case assessment mean response is significant at a two-tailed p-value , 0.0001.

7 An ethics instructor and a tax instructor graded student responses using the following scale: 0¼ student responds with ‘‘don’t know,’’ 1 ¼ student provides at least one correct item (for ‘‘list some’’ questions), or provides minimal information about the topic (for ‘‘briefly describe’’ questions), 2¼ student provides at least two correct items for the topic (for ‘‘list some’’ questions), or provides a correct definition or a correct example (for ‘‘briefly describe’’ questions), 3 ¼ student provides at least three correct items for the topic (for ‘‘list some’’ questions), or provides a correct definition and a correct example (for ‘‘briefly describe’’ questions). Blank responses were omitted in the analysis. Note that this same grading rubric may be adapted to evaluate students’ written responses to the case requirements questions.

Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning 325

Issues in Accounting Education Volume 30, No. 4, 2015

TEACHING NOTES AND STUDENT VERSION OF THE CASE

Teaching Notes and the Student Version of the Case are available only to non-student-member

subscribers to Issues in Accounting Education through the American Accounting Association’s

electronic publications system at http://aaapubs.org/. Non-student-member subscribers should use

their usernames and passwords for entry into the system where the Teaching Notes can be reviewed

and printed. The ‘‘Student Version of the Case’’ is available as a supplemental file that is posted

with the Teaching Notes. Please do not make the Teaching Notes available to students or post them

on websites.

TABLE 3

Student Survey Response Items Regarding Perceived Learning Outcomesa

Survey Item

Corporate Tax Class Results

Business Ethics Class Results

Mean (Std. Dev.) n

Mean (Std. Dev.) n

This case helped me to practice thinking critically about ethical

dilemmas in the context of business.

4.61 28 4.34 32

(0.57) (0.79)

This case helped me to think of alternative solutions to ethical

dilemmas in the context of business.

4.59 29 4.18 33

(0.63) (0.81)

Discussing this case helped me to appreciate both sides of a

controversial issue.

4.62 29 4.27 33

(0.62) (0.94)

This is an important issue that students should learn about and

discuss in the classroom.

4.69 29 4.52 33

(0.54) (0.83)

This case helped me understand the opposing interests of stakeholders

in corporate tax compliance and planning.

4.62 29 4.15 33

(0.56) (0.91)

It was a valuable educational experience to complete this case. 4.62 29 4.45 33

(0.68) (0.56)

I enjoyed working on this case. 4.41 29 4.36 33

(0.63) (0.60)

The assignment was too difficult for me. 1.97 29 1.82 33

(0.98) (0.68)

The case scenario was easy to understand. 4.38 29 3.88 33

(0.78) (0.70)

After completing this case, I feel competent analyzing ethical issues

around tax planning.

4.10 29 3.91 33

(0.72) (0.52)

This case was appropriate for my current skill and experience level. 4.21 29 4.16 32

(1.01) (0.77)

I would benefit from having more cases like this one where I can

apply knowledge that I have learned.

4.48 29 4.52 33

(0.74) (0.51)

I enjoyed working on an actual situation in which an accountant’s

work is questioned.

4.62 29 4.36 33

(0.56) (0.65)

I would enjoy having more cases like this one where I can apply

knowledge that I have learned.

4.34 29 4.42 33

(0.86) (0.61)

It is a valuable educational experience to complete a case about an

actual situation in which an accountant’s work is questioned.

4.34 29 4.48 33

(0.86) (0.57)

a Each question’s mean response is significantly different from a baseline score of 3 at a two-tailed p-value , 0.0001.

326 Hess and Alexander

Issues in Accounting Education Volume 30, No. 4, 2015

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REFERENCES

ActionAid. 2010. Calling Time: Why SABMiller Should Stop Dodging Taxes in Africa. Available at: http:// www.actionaid.org.uk/sites/default/files/doc_lib/calling_time_on_tax_avoidance.pdf

Wicks, A. C., J. D. Harris, and B. Parmar. 2003. Moral Theory and Frameworks. Available at: http://store. darden.virginia.edu/moral-theory-and-frameworks

Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning 327

Issues in Accounting Education Volume 30, No. 4, 2015

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