How Evraz ‘dodged’ R685m in taxes

CityPress - - Business - DE­WALD VAN RENS­BURG de­wald.vrens­burg@city­press.co.za

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.

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