How Evraz ‘dodged’ R685m in taxes
Evraz Highveld Steel and Vanadium used a shell “manufacturing” subsidiary in Austria to channel profits out of South Africa untaxed, according to the SA Revenue Service (Sars).
Its owner, the Russian Evraz group, then tried to ensure Highveld did not survive its current business rescue proceedings – so it could drive up prices in the international market for vanadium and some steel products, adds the department of economic development.
These two allegations are levelled at the company in court papers. Sars is claiming R685 million from Highveld related to business conducted from 2007 to 2009.
This has made it the largest creditor of Highveld and the decisive vote in favour of its business rescue plan last year.
Evraz, which used to be the biggest creditor, went to court to squash that business rescue plan so it could sell the company to Chinese group International Resources.
In an affidavit, Sars manager for audit Tebogo Mathosa unpacks the apparent tax evasion.
Highveld’s subsidiary in Austria, Hochvanadium Handels, was “merely a shell that conducted no business of its own”, he said.
He also revealed that Hochvanadium consisted of five people, each with a desk, phone and computer, who rented space in Austrian company Treibacher’s building, which is its sole customer.
This modest office nevertheless paid Highveld R1.4 billion in dividends between 2007 and 2009.
In its applications over the years to not pay tax in South Africa for Hochvanadium, Highveld had said that its business was “manufacturing of vanadium and the marketing thereof”.
This allowed it to qualify for a tax exemption meant to avoid the double taxation of subsidiary companies whose substantial operations are not in South Africa.
The five-man operation buys vanadium from Highveld in South Africa, then contracts Treibacher as a “toll manufacturer” to refine it.
Treibacher then buys the refined products to resell it to its own customers.
“You can’t claim to have an overseas subsidiary if all that subsidiary does is outsource manufacturing work,” Sars said.
Mathosa also said that Hochvanadium managed to reduce its tax in Austria to “significantly less than 75%” of what it would have paid in South Africa, by claiming Austrian tax deductions for amortisation of intangible assets.
The use of Hochvanadium as an apparent tax evasion structure came to Sars’ attention in 2013 when KPMG delivered a report on transfer pricing practices to Sars, Mathosa said.
However, Sars can only delve back more than three years into the tax affairs of a company if there is fraud or intentional misstatement involved.
Calling Hochvanadium a manufacturer was precisely that kind of “material misstatement”, Mathosa said.
Highveld’s letters to Sars disputing the tax claims say that Hochvanadium was a legitimate business that had to be located in Austria to provide “logistical and technical support” to Treibacher.
The company declined to comment this week.