World’s largest brewer’s R4.5 billion South African tax headache

South African Breweries-owner (SAB) AB InBev has taken a R4.5 billion hit to resolve a dispute with SARS relating to the sale of the company’s stake in Coca-Cola Beverages Africa in 2017. 

This was revealed in AB InBev’s results for the first half of its 2024 financial year, revealing record volumes for its South African unit. 

The performance of SAB was in stark contrast to some of the company’s other segments, with total volume declining and revenue growing marginally. 

AB InBev bought SABMiller in 2016 to unite the world’s two largest brewers in a single company – creating the world’s largest beer producer. 

However, one of the major sticking points that delayed this purchase was SAB’s ownership stake in Coca-Cola Beverages Africa. 

One of SAB’s major assets until 2014 was its ownership of Coca-Cola’s bottling operations in South Africa.

In 2014, The Coca-Cola Company, SAB, and Coca-Cola SABCO joined their operations to form Coca-Cola Beverages Africa (CCBA), one of the world’s largest bottlers of Coke products. 

SAB owned 57% of this company, which began operating in 2016. 

AB InBev announced its merger with SABMiller in October 2016. Simultaneously, The Coca-Cola Company announced its intention to take control of CCBA. 

Coke’s deal to acquire SAB’s stake was concluded in October 2017. The company now owns 66.5% of CCBA, with the rest held by Gutsche Family Investments.

This transaction was investigated by SARS, with preliminary findings released in March last year that showed SAB owed the receiver of revenue R6.4 billion in tax in addition to any penalties and interest. 

As more detail emerged, AB InBev said SARS claimed SAB owed it R6.4 billion in taxes and R17.7 billion in penalties and interest. 

R6.4 billion is substantial, making up nearly 5% of AB InBev’s total revenue from its African operations – including penalties and interest this rises to 20%. 

Coca-Cola Beverages Africa had received an assessment from SARS for R8.9 billion relating to the transaction. Both companies said they would contest the findings. 

AB InBev made no provisions for these matters as it considered the chances of losing its challenge to be minimal. 

However, a deal appears to have been struck between SARS and AB InBev, with the brewing giant revealing in its latest results that it paid R4.5 billion to resolve the tax matter. 

This amount would also settle any claims SARS had in relation to Coca-Cola Beverages Africa. AB InBev said R3.5 billion had already been paid as of 30 June 2024. 

Despite this, SAB had a very strong performance in the second quarter of 2024, with the company producing record volumes. 

“Volumes grew by mid-single digits in South Africa, continuing to outperform the industry in both beer and beyond beer segments, according to our estimates,” AB InBev said. 

“The momentum of our business continued, with our portfolio delivering another quarter of record-high volumes and gaining share of both beer and total alcohol.”

SAB currently operates multiple breweries, malt plants, and agricultural operations in South Africa. 

In 2022, the company invested R920 million into its Prospecton and Ibhayi breweries, supporting over 24,000 jobs throughout the beer-making process. 

This is part of SAB’s total investment in the South African economy of R4.5 billion, with the overall goal of creating 10,000 jobs in the country.

Currently, SAB employs 5,657 people directly in South Africa. The total value chain is estimated to support over 140,000 jobs among its 3,739 suppliers and 1,277 farmers. 

From farm to bottle, SAB beers are 97% locally sourced.