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.” http://saharareporters.com/2015/10/26/how-mtn-smuggles-billions-shell-companies-abroad-evade-tax-nigeria

ok

Empty N is going down

only if we can forget about them (fraudsters) and patronize our very own GLO