HOW MTN SMUGGLES BILLIONS OF DOLLARS ABROAD THROUGH SHELL COMPANIES, DENYING NIGERIA OF TAX
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 Ama Bhugane 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: Premium Times