Big Alcohol is externalizing costs of their products and marketing

Alcohol harm is pervasive and costly, affecting all countries at staggering rates.

  • Germany: costs of alcohol harm amount to almost €60 billion per year;
  • United States: alcohol harm costs $249 billion every year;
  • South Africa: only the tangible economic costs of alcohol are estimated at  1.6% of GDP;
  • South Korea: more than $30 billion is the annual cost of alcohol-related harm;
  • Thailand: total economic cost was estimated at about 1.99% of GDP per year;
  • New Zealand: alcohol-related harm costs $5 billion every year;
  • Australia: cost of alcohol-related harm is estimated to be $36 billion a year.
  • England, UK: the total social cost of alcohol to England in 2006-07 was £55.1 billion;

To my mind these figures are astronomical. It’s difficult to put these sums in context. One thing is clear is: alcohol-related harm puts a massive burden on people and societies around the world.

In light of this burden, I think it’s important we consider the financial contribution that alcohol corporations make to the costs they inflict on the broader community. As of right now, alcohol corporations are externalizing the costs of their products and their marketing, raking in windfall profits and leaving communities alone with the paramount burden of harm and costs. Multinational alcohol corporations are aggressively scheming to externalize costs and exploit people, communities and societies.

Schizophrenic and cynical alcohol industry

Alcohol taxation is the most cost-effective and high-impact public health strategy to prevent and reduce alcohol harm. Another important purpose of alcohol taxes is to generate revenue for governments to compensate for the costs borne by health services, policing and justice systems as a result of alcohol related crime, injury and ill health.

Sadly, only few countries currently set their alcohol tax rates at levels that compensate for the fiscal costs of alcohol harm to their respective communities. The reason: Big Alcohol lobbies aggressively against public policy measures that would effectively reduce alcohol use and related harm.

A remarkable example was Hongkong in 2008, when it removed all taxation on beer and wine. Scientific analysis of the policy showed:

… the success of aggressive industry lobbying coupled with the absence of robust public health advocacy was the main driving force behind the unparalleled abolition of wine and beer duties in Hong Kong.

Strong public health alliance and advocacy movement are needed to counteract the industry’s continuing aggressive lobby and promotion of alcoholic beverages.”

This is a schizophrenic situation: On the other hand, Big Alcohol executives do everything possible to avoid and even evade paying taxes; they do whatever possible to stifle attempts for raising alcohol taxation. On the other hand alcohol industry executives claim they are responsible actors paying their fair share of taxes and making contributions to society.

Don’t be fooled by their spin and cynical myths. What exactly “aggressive lobby” work by Big Alcohol entails is illustrated by Diageo, the world’s fourth largest alcohol producer: For years, Diageo paid bribes in India, South Korea and Thailand to obtain favorable tax rebates.

Another example is Australia where Diageo received a tax refund of $506,000 in 2015, despite making a profit of more than $12 million.

Spinning, spinning, lying

Big Alcohol corporations like to spin their dislike of alcohol taxation and their aggressive attempts to avoid paying taxes into tales of responsibility, accountability and transparency. One executive has now been spinning too much and got it all twisted:

Diageo CEO Ivan Menezes can be seen and heard on TV lying about his company’s tax schemes. In an interview with CNBC he was asked about an ongoing dispute with the British tax authority. Diageo allegedly shifted profits between the UK and a subsidiary in the Netherlands. The multinational corporation has been ordered to pay £107m by the UK tax authority as part of a long-running investigation into moving profit between its global businesses.

Diageo CEO Menezes lying on TV

In the interview, the CNBC reporter lists figures of Diageo’s low tax rates and (quite remarkably) asks Mr Menezes whether Diageo has “been engaged in tax avoidance in recent years?”

In his stuttering reply, Mr Menezes is obviously spinning the truth too hard:

No, Diageo pays its tax everywhere in the world in line with its obligations…

We work with tax authorities around the world in a very transparent way.

We run our business with very solid operations in every jurisdiction. So our tax policies are very fair, transparent and I’m proud of Diageo’s approach to tax and the corporate tax that we pay around the world.”

  1. Paying taxes everywhere in line with obligations, is a lie.

    That Diageo does not pay its tax everywhere in line with its obligations can be seen by two examples this year. Both France and the UK take issue with Diageo’s profit shifting to avoid paying taxes. In France, for instance, the new government takes issues with the amount of debt interest Diageo has booked through its French subsidiary – payments that reduced its tax liabilities. The new French government alleges that Diageo’s way of dealing with debt interest was illegal and plans to impose a back tax on the company.

  2. Working with tax authorities in a very transparent way, is a lie.

    Consider this fact: The United States Securities and Exchange Commission (SEC) charged Diageo plc with violations of the U.S. Foreign Corrupt Practices Act’s (FCPA) books and records and internal controls provisions in connection with US$2.7 million in improper payments allegedly made through its subsidiaries in India, Thailand and South Korea to obtain sales and tax benefits relating to its Johnnie Walker and Windsor Scotch whiskeys, among other brands.

  3. Running very solid operations, is a lie.

    I think that if your company is being investigated by government agencies for misconduct around the world for over a decade, it simply not to true to claim solid operations.
    And I’m now not even talking about Diageo’s marketing strategies. This is not an ordinary company with sold operations. This is a corporation that continually makes unethical business choices, pursuing profits ruthlessly.

  4. Diageo’s fair and transparent tax policies, are a lie.

    Diageo is a member of DISCUS and spiritsEurope, two lobbying organizations on behalf of the liquor industry in the United States and Europe respectively.
    The Distilled Spirits Council of the United States is aggressively lobbying against tax increases, on behalf of its members, including Diageo. Part of the strategy is to misrepresent scientific evidence on the effectiveness of alcohol taxation.
    Diageo on its own has so far spend more than $1 million in 2017 for lobbying the US Congress. Their biggest lobbying issue? Taxation.
    The picture is similar in Europe. Diageo is member of the European lobby front group SpiritsEurope, leading the charge against alcohol taxation and for further trade liberalizations of alcohol regulations.
    All that can hardly be presented as fair and transparent tax policies. I’d rather say this is aggressive lobbying to undermine existing legislation, block reform and cast doubt about the scientific evidence.

A conclusion and a lesson

Diageo’s CEO says he is proud of his company’s approach to tax. I think that Diageo’s track record is nothing to be proud of.

Diageo is not an ordinary company. This is not an ordinary CEO. Spinning the truth until it becomes a lie is not normal, even if it is standard in the alcohol industry. Diageo’s products are not ordinary commodities but harmful for individuals, families, communities and societies at large. Apparently Diageo is intent on evading responsibility, rather burdening society with paying the costs for the harms its products and marketing cause, instead of acting responsibly and ethically.

I think from this story, we learn about the important role of taxation and the harmful impacts of tax evasion, tax avoidance, tax competition and tax havens. Alcohol taxation has tremendous potential to reduce alcohol harm and to support revenue generation for health and development promotion.

We need a global tax regime that puts people first, not corporations and their executives. And we need to international cooperation on tax regulation and tax related crimes to hold corporations accountable.

For further reading:

News, August 14, 2017:
“Diageo: New Tax Schemes Exposed”

Report, 2017
Lanis, R., McClure R., Zirnsak, M. (2017) Tax aggressiveness of alcohol and bottling companies in Australia. Canberra: Foundation for Alcohol Research and Education.