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

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Read Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning and answer thefollowing case questions:

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 theways in which SABMiller'scurrent tax practices either support or conflict with its corporate values. Overall,would you say that SABMiller's current taxpractices are consistent or inconsistent with its corporate values?

3. Identify the relevant stakeholders in this situation.What are the long-term consequences for stakeholders if SABMiller continues with its current tax practices? Note: You maydiscuss 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 statementitems 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?

ISSUES IN ACCOUNTING EDUCATION Vol. 30, No. 4 2015 pp. 311-327 American Accounting Association DOI: 10.2308/iace-51178 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 1 aria Smith 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. 311 Hess and Alexander 312 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 $1.9 billion in profits, posting revenue gains of 4 percent and an earnings per share (EPS) increase of 17 percent. SABMiller attributed much of the growth in earnings to reductions in the company's effective tax rate (SABMiller 2010, 1). Table 1 compares SABMiller's 2010 financial performance according to International Financial Reporting Standards (IFRS) with those of its primary competitors, Anheuser-Busch InBev and Heineken Holding N.V. These IFRS-adjusted results paint a much bleaker picture for SABMiller. Indeed, the company under-performed relative to its competitors in nearly every category. This comparison also suggests that both Anheuser-Busch and Heineken were even more aggressive in their tax-avoidance efforts than SABMiller. SABMILLER'S CORPORATE TAX PLANNING The Guardian newspaper article giving Maria such heartburn drew upon a lengthy report written by a tax advocacy group called ActionAid (2010). ActionAid is a non-governmental organization (NGO) headquartered in Johannesburg, South Africa with a mission of ending poverty and injustice. ActionAid first became interested in SABMiller when the brewer bought Accra Brewery Limited, West Africa's first brewery and the pride of Ghana. ActionAid was concerned Issues in Accounting Education Volume 30, No. 4, 2015 Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning 313 TABLE 1 Comparison of 2010 Financial Results (in millions of US$) Revenues Annual increase (decrease) Profit from Operations Annual increase (decrease) Income tax expense Effective tax rate Net Profit Annual increase (decrease) Basic earnings per share Annual increase (decrease) Return on equity Return on assets a b c SABMillera Anheuser-Buschb Heinekenc $18,020 \u00023.7% 2,619 \u000220.2% 848 29.0% 2,081 \u00023.5% 1.23 \u00022.1% 10.1% 5.5% $36,297 \u00021.3% 11,165 8.9% 1,920 25.0% 5,762 \u00022.0% 2.53 \u000213.1% 16.3% 5.0% $25,813 9.7% 3,653 40.1% 638 20.3% 2,509 37.3% 4.21 26.4% 14.9% 5.9% SABMiller (2010). Anheuser-Busch InBev (2010). Heineken Holding N.V. (2010). 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 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). Issues in Accounting Education Volume 30, No. 4, 2015 314 Hess and Alexander 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. Issues in Accounting Education Volume 30, No. 4, 2015 Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning 315 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 Issues in Accounting Education Volume 30, No. 4, 2015 316 Hess and Alexander 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 \u000245.3 percent effective tax rate in 2010, DuPont had \u00023.4 percent effective tax rate in 2010, and Verizon had a \u00022.9 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 mosteducation, 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 5 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. 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--- Issues in Accounting Education Volume 30, No. 4, 2015 Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning 317 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). Issues in Accounting Education Volume 30, No. 4, 2015 Hess and Alexander 318 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-havensallow-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/defaultsource/investor-documents/reports/2010/ financial-reports/annual-report-interactive-2010. pdf?sfvrsn2 Issues in Accounting Education Volume 30, No. 4, 2015 Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning 319 APPENDIX A Accra Brewery Limited Income Statementa 2010 2009 2008 2007 69,380 (12,927) (9,050) 50,214 (9,841) (6,732) 39,485 (9,031) (5,235) 38,495 (8,884) (5,106) Net Revenue 47,403 33,641 25,219 24,505 Materials sourcing Staff cost 27,648 2,309 18,406 1,634 11,190 1,415 COGS 29,957 20,040 12,605 Freight and distribution Advertising and promotion 3,644 3,749 3,563 2,870 1,949 2,413 Selling & distribution expenses 7,393 6,433 4,362 Other administrative expenses 10,156 8,644 6,448 Operating profit (loss) Other income Net finance cost (103) 506 (7,216) (1,476) 12 (963) 1,804 175 (303) Before tax profit (loss) (6,813) (2,427) 1,676 Gross Revenue Excise duty Sales tax/VAT Tax credit (expense) 1,142 After tax profit (loss) (5,671) 187 (2,240) 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. Issues in Accounting Education Volume 30, No. 4, 2015 326 (790) 11 886 337 United Kingdom The Netherlands South Africa The Netherlands The Netherlands United Kingdom Colombia Colombia Colombia Peru Peru Ecuador Panama Panama British Virgin Islands Honduras El Salvador The Netherlands United Kingdom Italy Romania Spain Hungary Russia Latin American Operations Bavaria SAb Cerveceria Union SA Cerveceria del Valle SA Union de Cervecerias Peruanas Backus y Johnston SAAb Cerveceria San Juan SAb Cerveceria Nacional (CN) SAb Latin Development Corporationb Cerveceria Nacional SAb Bevco Ltd Cerveceria Hondurena, SA de CV Industrias La Constancia, SA de CV European Operations SABMiller Europe BVa SABMiller Holdings Europe Ltd S.p.A. Birra Peroni Ursus Breweries SA Compania Cervecera de Canarias SA Dreher Sorgyarak Zrt SABMiller RUS LLC Country of Incorporation Corporate SABMiller Holdings Ltd SABMiller Finance BVa SABSA Holdings (Pty) Ltd SABMiller Africa and Asia BVa SABMiller International BV SABMiller Latin America Ltd Name Holding company Holding company Brewing Brewing Brewing Brewing Brewing Brewing/Soft drinks Brewing Brewing Brewing Brewing/Soft drinks Brewing Holding company Brewing Holding Company Brewing/Soft drinks Brewing/Soft drinks Holding company Holding company Holding company Holding company Trademark owner Holding company Principal Activity SABMiller's Principal Subsidiaries, Associates, and Joint Ventures in 2010 APPENDIX B 100% 100% 100% 99% 51% 100% 100% 99% 98% 99% 93% 86% 95% 99% 97% 100% 99% 100% 100% 100% 100% 100% 100% 100% 2009 (continued on next page) 100% 100% 100% 99% 51% 100% 100% 99% 98% 99% 93% 86% 96% 97% 100% 99% 100% 100% 100% 100% 100% 100% 100% 2010 Effective Interest in Ordinary Share Capital 320 Hess and Alexander Issues in Accounting Education Volume 30, No. 4, 2015 Issues in Accounting Education Volume 30, No. 4, 2015 USA USA The Netherlands The Netherlands United Kingdom The Netherlands Ghana Mauritius Ethiopia Botswana Mozambique Angola Angola Malawi Zambia Botswana Lesotho Zambia Uganda Nigeria African Operations SABMiller Africa BV SABMiller Botswana BV SABMiller (A&A) Ltd SABMiller Investments II BV Accra Breweries Ltdb Ambo International Holdings Ltd Ambo Mineral Water Share Company Botswana Breweries (Pty) Ltd Cervejas de Mocambique SARLb Coca-Cola Bottling Luanda SARL Coca-Cola Bottling Sul de Angola SARL Chibuku Products Ltd Heinrich's Syndicate Ltd Kgalagadi Breweries (Pty) Ltd Lesotho Brewing Company (Pty) Ltd National Breweries plcc Nile Breweries Ltd Pabod Breweries Ltd Poland Czech Republic United Kingdom Slovakia The Netherlands Ukraine The Netherlands Country of Incorporation North American Operations SABMiller Holdings Inc Miller Brewing Company Kompania Piwowarska SAd Plzensky Prazdroj as Miller Brands (U.K.) Ltd Pivovary Topvar as Grolsche Bierbrouwerij Nederland BV CJSC Sarmat SABMiller Netherlands Cooperative WA Name APPENDIX B (continued) Holding company Holding company Holding company Holding company Brewing Holding company Soft drinks Sorghum brewing Brewing Soft drinks Soft drinks Sorghum brewing Soft drinks Brewing/Soft drinks Brewing/Soft drinks Sorghum brewing Brewing Brewing Holding company Holding company Brewing Brewing Sales and distribution Brewing Brewing Brewing Holding company Principal Activity 62% 62% 100% 43% 31% 49% 28% 37% 31% 62% 31% 24% 43% 60% 57% 100% 100% 72% 100% 100% 100% 100% 100% 100% 2009 (continued on next page) 62% 62% 100% 80% 43% 60% 40% 31% 49% 28% 37% 31% 62% 31% 24% 43% 60% 57% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2010 Effective Interest in Ordinary Share Capital Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning 321 Brewing/Soft drinks/ Holding company Hop farming Maltsters Fruit Juices Holding company Holding company Holding company Holding company Brewing Brewing Brewing Soft drinks Brewing Brewing Brewing Holding company Soft drinks Soft drinks Brewing/Soft drinks Principal Activity 100% 100% 100% 100% 100% 100% 100% 100% 99% 100% 100% 80% 80% 37% 33% 80% 80% 80% 54% 2010 100% 100% 100% 100% 100% 100% 100% 100% 99% 100% 100% 80% 37% 33% 80% 80% 80% 54% 2009 Effective Interest in Ordinary Share Capital b Operations and resident for tax purposes in the United Kingdom. Listed in country of incorporation. c This entity was merged into Bavaria SA on April 27, 2000. d SABMiller Poland BV, a wholly owned subsidiary of the group, hold 100 percent of Kompania Piwowarska SA as of March 31, 2010 (March 31, 2009: 71.9 percent). a South Africa South Africa South Africa South Africa South African Operations The South African Breweries Ltd The South African Breweries Hop Farms (Pty) Ltd The South African Breweries Maltings (Pty) Ltd Appletiser South Africa (Pty) Ltd The Netherlands Hong Kong United Kingdom India India India Vietnam Uganda Sudan Swaziland Tanzania British Virgin Islands Ghana Nigeria Zambia Country of Incorporation Asian Operations SABMiller Asia BV SABMiller (Asia) Ltd SABMiller (A&A 2) Ltd SABMiller India Ltd Skol Breweries Ltd SABMiller Breweries Private Ltd SABMiller Vietnam Company Ltd Rwenzori Bottling Company Southern Sudan Beverages Ltd Swaziland Brewers Ltd Tanzania Breweries Ltdb Voltic International Inc Voltic (GH) Ltd Voltic Nigeria Ltd Zambian Breweries plcb Name APPENDIX B (continued) 322 Hess and Alexander Issues in Accounting Education Volume 30, No. 4, 2015 Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning 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 Issues in Accounting Education Volume 30, No. 4, 2015 323 Hess and Alexander 324 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). Issues in Accounting Education Volume 30, No. 4, 2015 Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning 325 TABLE 2 Graded Assessment of Student Survey Responses Regarding Knowledge of Case Topicsa Pre-Case Assessment Survey Item List some of the ethical issues associated with corporate tax planning. What role do professional ethics standards play in ethical decision making? Briefly define principles in the context of ethical decision making. Briefly define character in the context of ethical decision making. Briefly define stakeholders in the context of ethical decision making. Identify three techniques that companies use to shift profits to low-tax jurisdictions. a Mean (Std. Dev.) 1.04 (0.94) 0.65 (1.04) 0.55 (0.91) 0.67 (0.92) 1.06 (1.03) 0.65 (0.84) Post-Case Assessment n Mean (Std. Dev.) 51 51 49 49 49 48 2.00 (0.63) 1.63 (0.81) 1.85 (0.46) 1.79 (0.68) 2.00 () 2.59 (0.50) n 31 30 27 29 28 29 Each question's post-case assessment mean response is significant at a two-tailed p-value , 0.0001. 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. 7 An ethics instructor and a tax instructor graded student responses using the following scale: 0 student responds with ''don't know,'' 1 student provides at least one correct item (for ''list some'' questions), or provides minimal information about the topic (for ''briefly describe'' questions), 2 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 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. Issues in Accounting Education Volume 30, No. 4, 2015 Hess and Alexander 326 TABLE 3 Student Survey Response Items Regarding Perceived Learning Outcomesa Survey Item This case helped me to practice thinking critically about ethical dilemmas in the context of business. This case helped me to think of alternative solutions to ethical dilemmas in the context of business. Discussing this case helped me to appreciate both sides of a controversial issue. This is an important issue that students should learn about and discuss in the classroom. This case helped me understand the opposing interests of stakeholders in corporate tax compliance and planning. It was a valuable educational experience to complete this case. I enjoyed working on this case. The assignment was too difficult for me. The case scenario was easy to understand. After completing this case, I feel competent analyzing ethical issues around tax planning. This case was appropriate for my current skill and experience level. I would benefit from having more cases like this one where I can apply knowledge that I have learned. I enjoyed working on an actual situation in which an accountant's work is questioned. I would enjoy having more cases like this one where I can apply knowledge that I have learned. It is a valuable educational experience to complete a case about an actual situation in which an accountant's work is questioned. a Corporate Tax Class Results Business Ethics Class Results Mean (Std. Dev.) Mean (Std. Dev.) 4.61 (0.57) 4.59 (0.63) 4.62 (0.62) 4.69 (0.54) 4.62 (0.56) 4.62 (0.68) 4.41 (0.63) 1.97 (0.98) 4.38 (0.78) 4.10 (0.72) 4.21 (1.01) 4.48 (0.74) 4.62 (0.56) 4.34 (0.86) 4.34 (0.86) n 28 29 29 29 29 29 29 29 29 29 29 29 29 29 29 4.34 (0.79) 4.18 (0.81) 4.27 (0.94) 4.52 (0.83) 4.15 (0.91) 4.45 (0.56) 4.36 (0.60) 1.82 (0.68) 3.88 (0.70) 3.91 (0.52) 4.16 (0.77) 4.52 (0.51) 4.36 (0.65) 4.42 (0.61) 4.48 (0.57) n 32 33 33 33 33 33 33 33 33 33 32 33 33 33 33 Each question's mean response is significantly different from a baseline score of 3 at a two-tailed p-value , 0.0001. 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. Issues in Accounting Education Volume 30, No. 4, 2015 Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning 327 If you are a non-student-member of AAA with a subscription to Issues in Accounting Education and have any trouble accessing this material, please contact the AAA headquarters office at info@aaahq.org or (941) 921-7747. 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 Issues in Accounting Education Volume 30, No. 4, 2015 Copyright of Issues in Accounting Education is the property of American Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use