Coca Cola named in multi million dollar tax haven scam

Drinks giant Coca-Cola Amatil has declined to answer detailed questions over its role in an international invoicing scam that could have cost taxpayers up to $15 million.

The soft-drink conglomerate, headquartered in Sydney, Australia, has been named in a Cook Islands Audit Office investigation as a participant in a split invoicing scam that netted its exclusive agent in the small Pacific nation millions of dollars over the past three decades.

HISCOVFebMar13

Details of the Audit investigation have been published this morning in Investigate magazine in a ten page special report.

The Cook Islands receives nearly NZ$25 million in taxpayer-funded aid money from Australia and New Zealand each year, but Investigate magazine reports that Cook Islands Audit found a major anomaly with soft drink imports from Coca-Cola Amatil.

The Audit Office investigation tabled in the local parliament and subsequently given to Investigate magazine reveals that of all the food and consumer goods importers in the Cook Islands, only CCA’s exclusive agent, CITC, was given special treatment.

“We confirmed,” says the Audit Report, “there was an arrangement in place, specifically between Customs and CITC that:

  • Allowed CITC to separate contents and packaging on imported products supplied by Coca Cola (NZ) since the mid 1980s until the practice was revoked in September 2009;
  • By separating their invoices, CITC paid a 10% levy of packaging and 40% levy on contents, whereas other local importers had paid the full 40% levy on the cost of the product as a whole;
  • As a result of the arrangement, CITC had gained a significant financial advantage over other importers, including the steady increase in the value of packaging from 2001 onwards and especially when the 10% levy on packaging for all imports was removed by an Executive Order on 1 July 2006…”

In plain English, the deal was this. Since 1980, import duties had been levied on all products. Somewhere around 1985, CITC did a deal with someone in Customs that no one else in the Cook Islands – particularly other importers – knew about. CITC would be allowed to split its invoices for soft drinks supplied by Coca-Cola Amatil NZ, and pay a 40% duty on the actual fizzy stuff, but only a 10% duty on the declared value of the cans and bottles the fizz was contained in.

Let’s say a can of Coke’s declared value was $2, for argument’s sake. A 40% duty levied on the entire product would see the importer forced to pay 80 cents to Cook Islands Customs.  But the wide boys at CITC hit upon a plan. Why not tell Customs that the aluminium can itself was worth nearly half the total value of the product. Then CITC could get away with paying only a 10% levy on that portion, while still paying 40% duty on the alleged value of the actual fizz (or as Customs refers to it, “aerated water with sugar added”).

When the packaging levy was abolished in 2006, CITC pocketed even more money. Suddenly nearly half of the product was attracting no duty at all, provided you classified it as “re-usable packaging”. It doesn’t take a rocket scientist to figure out that if you attributed the majority of your declared product as packaging, for Customs purposes, and only declared a small value to the contents, you could save millions. As an example, imagine a $20,000 diamond ring imported in a one dollar ring box. If it were CITC importing it, the box would be valued at $19,000 to attract a 10% (or later, zero) duty, and the ring itself would be declared as worth $1,000 for a 40% duty on that amount.

But surely, you are saying as you read this, no Customs agency in the world would be dumb enough to allow you to evade Customs duty by the artifice of declaring very expensive packets and very cheap contents? You’d be right. The New Zealand and Australian Customs agencies have very clear rules that products are to be considered as a total unit for duty purposes, packaging included, unless the packaging is designed by the trade to be re-used by the trade. An example might be refillable gas bottles or, in the old days, glass milk bottles which were re-used by milk factories over and over.

Aluminium drink cans and plastic soda bottles do not fall under that definition of re-usable trade equipment. Indeed, as anyone who’s ever claimed the five-cents-a-can return bounty knows, there’s no way in the world anyone would seriously believe the can containing the Coke was worth more than the fizz inside. No one, that is, except Cook Islands revenue officials.

The Audit Office investigation in 2011 – only now coming to light in New Zealand and Australia – was stymied by a lack of cooperation. Even Government officials involved conveniently couldn’t remember key details or provide documentation to support their claims about its authenticity.

“Because many source documents were missing, the exact loss of Government revenue could not be quantified prior to 2006,” notes Audit. “As many source documents could not be located, we were unable to quantify import totals against the Department of Statistics information. Access to email accounts and computer files of former Customs and Revenue Management Division staff prior to 2009 was extremely limited.”

Full details are in the magazine’s print and digital editions

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