MTN has consistently prided itself as the foremost telephone company
that is getting Nigerians talking the most.
Now the South African
company is about to set tongues wagging across networks with revelations
that it has routinely been shipping billions of dollars overseas to
avoid paying its fair share of tax in Nigeria.
An 11-month-long joint investigation by PREMIUM TIMES, Finance
Uncovered and amaBhugane reveals that MTN has been running circles
around Nigerian revenue authorities using a complex but noxious tax
avoidance scheme called Transfer Pricing.
For any economy, it is a slow death.
The red flag was raised the moment our investigations showed that MTN
Nigeria has been making payments to two overseas companies – MTN Dubai
and MTN International in Mauritius – both located in tax havens.
It was discovered that in 2013 for example, MTN set aside N11.398
Billion from MTN Nigeria to pay to MTN Dubai. A similar transfer of
N11.789 Billion was made by MTN Ghana to the same MTN Dubai, making it a
total of N23.187 Billion that was shipped to the Dubai offshore
account.
In a rare disclosure in 2013, MTN admitted it made unauthorized
payments of N37.6 Billion to MTN Dubai between 2010 and 2013. The
transfers were then “on-paid” to Mauritius, a shell company with zero
number of staff and which physical presence in the capital Port Louis is
nothing more than a post office letter box. The disclosure amounted to a
confession given that MTN made the dodgy transfers without seeking
approval from the National Office for Technology Acquisition and
Promotion (NOTAP), the body mandated to oversight such transfers.
On the basis of an earlier management fees agreement that was
technically quashed by NOTAP and on the basis of MTN’s reported
revenues, it is estimated that N90.2 Billion could have been transferred
out of Nigeria in management fees alone since the company was founded
in 2002.
Transfer Pricing
For corporate organizations determined to escape the taxman but still
cleverly staying on the right side of the law, Transfer Pricing is the
new cellar door constructed by the most ingenious of accountants. It is a
new global disease to which Third World economies are the most
vulnerable.
Multinationals employ Transfer Pricing to move their profits
offshore, leaving behind a shrinking tax base in their host countries
and inexorable cuts to public services.
In Africa, tax avoidance has been named as one of the factors holding
the continent back by starving governments of the revenues it needs for
development.
A report jointly commissioned by the United Nations and the African
Union and drafted by a high level panel led by former South African
president Thabo Mbeki considered tax avoidance by multinationals to be
an “illicit financial flow” and a significant drain on government
resources across the continent.
In total illicit financial flows, which included corruption and the
proceeds of crime, were determined to be costing the continent $50
Billion a year $50bn.
Just last year, South Africa’s deputy president Cyril Ramaphosa had
harsh words for tax dodgers. He said: “Tax evasion is not only a crime
against the state; it’s also a crime against the people of our country,
ordinary people.”
Curiously, the same Cyril Rhamaposa was non-executive chairman of the
board of MTN between 2001 and 2013 before he became South Africa’s No.2
man. In effect, the same tax practices which the deputy president
strongly condemned in his country as financial crime is vigorously being
promoted in Nigeria.
MTN is the largest cell phone company in Africa with 227.5 million
subscribers. The company, which operates in more than 20 countries
across Africa and the Middle East, has Nigeria as its biggest operation.
Until now, tax justice investigations had focused on computer giants,
corporations in the extractive industry, food and beverages; in fact
everywhere but the mobile phone sector despite the cell phone industry
in Africa being one of the largest and most important industries for the
continent.
Mobile phone has been a cheap and quick way of rolling out the vital
communications infrastructure that has underpinned Africa’s growth story
over the last decade. As a result the industry has seen explosive
growth. With 685million mobile phone users in Africa, the success story
means that cell phone companies are now the largest contributor to
government revenues in many African countries. That is when they pay
their fair share of taxes.
Artificial operating costs
To pay little or no tax, companies determined to cheat begin by
seeking ways to create artificial operating costs in the country where
they operate. For example, a company is in Nigeria but has a parent or
subsidiary company in another country. It makes huge profit but decides
to declare a much lower profit-before-tax. To achieve this, it pays the
parent and/ or subsidiary company for services not rendered and ships
cash to them. Where services are rendered, the costs are inflated. Such
services may include royalty for the use of brand name, procurement
services, technical services and management services.
Typically, the recipient company is located in an offshore territory
under a different financial jurisdiction. MTN has a substantial network
of subsidiaries in offshore tax havens, including the British Virgin
Islands, Dubai and Mauritius.
Because of the growing concerns that multinationals are using
intra-company trading to shift profits around the world by overcharging
for services delivered or in more extreme cases by creating artificial
transactions where no services was rendered at all, respective countries
have a maximum percentage of profits it can allow companies to pay out
as management fees.
For example, in Senegal, accounts from the company Sonatel show that
the company has a ‘cooperation agreement’ with parent company France
Telecom that is capped at 1.43% of revenue.
Until 2010 MTN Nigeria had an agreement with MTN Dubai to pay 1.75%
of revenues to the company for management, and royalties for the use of
the MTN trademark. Nigeria requires that management fees paid by
multinationals are approved by the National Office for Technology
Acquisition and Promotion (NOTAP). The fee payments had been reversed
following a failure to come to a new agreement on management fees with
Nigerian regulators.
MTN’s previous agreement with NOTAP expired in 2010.
Notwithstanding, MTN has continued to make payments overseas. When we
sent questions to MTN over these unauthorized payments, the company
told us that this was because they expected NOTAP to approve a new deal
and backdate it to the date of the expiry of the previous deal.
MTN’s financial activities are now being questioned by more than one tax authorizes in Africa.
In Ghana the MTN subsidiary, Scancom, has been paying vast management
fees to companies located offshore. Our investigations reveal that
Scancom paid 758m GHS in management and technical fees to MTN Dubai
between 2008 and 2013. This was 9.64% of the company’s revenue. Normally
the maximum fee level allowed in Ghana is 6%.
We can reveal that the high levels of fees attracted the attention of
Ghana’s intelligence services, which launched an investigation into
“economic fraud” between 2012 and 2013.
MTN’s management fees need approval from the Ghana Investment
Promotion Centre (GIPC). The Ghanaian “National Security Taskforce” has
called for a “review of all technology transfer and management service
agreements currently held by GIPC to remove sections which are
inapplicable and wrongly provided for” and upgrading and training of
state systems and staff.
In response to this, MTN in Ghana told us: “The technical and
management services agreements between Scancom and Investcom were duly
approved by the GIPC.”
The current head of the GIPC is Mrs. Mawuena Trebarh, who between
2007 and 2012 was responsible for government relations at MTN Ghana.
This reporting team asked Mrs Trebarh to comment on whether her previous
role could be perceived a conflict of interest. She did not respond to
our requests.
In response to our enquiries MTN confirmed that the company paid 12
billion West African Francs in 2012 and 14 billion West African Francs
in 2013 in management fees to MTN International. The figure for 2013 is
equivalent to 5% of the revenue made by MTN in Cote d’Ivoire.
Dubai paradox
Dubai is one of the places MTN ships huge profits to. Meanwhile, MTN
does not operate any mobile phones in Dubai, yet it has significant
operations in the small city state.
MTN told us that it employs around 115 people in Dubai who provides
services to the MTN group such as group procurement, group finance,
legal services, human resources and other corporate functions.
One tool that campaigners have said will be helpful is to look at
company reporting on a country by country basis. If a company is making
huge revenues in a country where it has few employees but there is a low
tax rate, which would suggest that there may be some profit shifting
taking place.
In Uganda, a dispute between the Uganda Revenue Authority and MTN has
revealed that the company is paying 3% of its turnover in management
fees to MTN International.
The fees have been challenged by the Uganda Revenue Authority (URA)
who issued MTN with a “notice of assessment” in 2011. This was for a
number of tax issues between 2003 and 2009, but a large portion was to
do with a dispute over management fees, most of which had been paid to
Mauritius.
Correspondence between the URA and MTN seen by us show that the URA
questioned the legitimacy of these fees, and pointed out that MTNI, the
company providing “management services” to MTN Uganda had not spent any
money in the years they had looked into. The URA said this could only
mean two things: that management services provided to MTN Uganda had
either already been paid for by MTN Uganda (and so MTN was in effect
charging twice for the same thing) or they were never provided at all.
The Ugandan authority told the company: “We have repeatedly asked for
evidence of specific work performed by MTN Group for MTN Uganda for
each of the tax years 2003 to 2009. We have only been provided with very
little information relating to 2009 and the latter years. This
information is very far from justifying a payment of 3 per cent of MTN
Uganda’s turnover as management fees.”
NOTAP keeps mum
Asked to confirm the amount of fees paid out to MTN Dubai and
Mauritius based on the company’s reported revenue between 2002 and
today, MTN told PREMIUM TIMES: “There is no disclosure obligation for
this information in South Africa or Nigeria.”
Asked to explain the possible justification for MTN Nigeria to pay
fees for management and technical services to a company with no
employees, MTN said: “It is the contracting party’s prerogative as to
how it elects to discharge its contractual obligations.”
Meaning is that MTN Mauritius can perform its task without a single staff member.
PREMIUM TIMES made sustained efforts to get NOTAP and the Federal
Inland Revenue Service (FIRS) to comment on the MTN practices in
Nigeria.
The Director in charge of Technology Transfer and Agreement, Ephraim
Okejiri, initially pleaded that he was in a meeting, and that the
reporter should wait.
But after over four hours of waiting, he sent a secretary to say he would not be able to give any information on MTN.
Similarly at Nigeria’s tax agency, the Federal Inland Revenue
Service, the Director of Public Communications, Emmanuel Obeta, who had
earlier promised on three occasion to make information available on the
matter suddenly had a change of mind.
He said relevant officials who should provide him with the information sought were all not available.
Source: PremiumTimes
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