SKY-HIGH TAX SCHEME
At 5:37 pm on April 22 2011, from a seaside launch pad in Latin America, a hulking satellite rose into the sky and took up its position over northern Tanzania. The New Dawn Satellite was proudly African — partly funded by local investors and promoted as a way for African schoolchildren, nurses, civil servants and businesses to access world-class Internet and mobile phone networks.
But if New Dawn’s purpose was to promote African development, its tax strategy did exactly the opposite. This is evident from the Paradise Papers — 13.4m documents leaked from 19 tax havens and in the possession of amabhungane and the Financial Mail.
These reveal that the companies behind the New Dawn Satellite channelled millions of dollars from African companies and governments through offshore companies in Mauritius, one of the continent’s premier tax havens.
Those companies achieved a Mauritian double-whammy: using one kind of offshore company to avoid local taxes and another to pay as little as possible on bills paid from overseas, using treaties signed between Mauritius and its African neighbours.
(SA’S Convergence Partners were early investors, but pulled out of the project after a year.)
The primary moneymaking company estimated that it would pay US$22,500 in taxes on $75m in revenue – just 0.03%. In fact, over the 17-year life of the project, the company predicted it would earn $936m, yet never pay taxes above $300,000.
That’s according to a Powerpoint presentation from the Paradise Papers, which included documents from the satellite’s coowner, Intelsat.
“The purpose of the tax structure is to drastically minimise the tax exposure of the company and pay as little as possible, which the company has successfully achieved,” says Alexander Ezenagu, an international tax researcher with the International Centre for Tax & Development, who analysed Intelsat’s documents.
Intelsat, which is based in Luxembourg, isn’t a household name. But its technologies are behind some of the 20th century’s most enduring memories. For example, Intelsat’s satellites allowed millions to watch the 1969 moon landing and the 2000 Sydney Olympics. Its satellites cover 99% of the world’s population, allowing cellphone and Internet providers to offer phone calls, Internet and television.
In 2013, however, Intelsat closed down the African project after unexpectedly low financial returns. Even then, the company’s tax return that year reflects that it paid
0.09% tax on revenue of $31.6m.
Intelsat told the International Consortium of Investigative Journalists (ICIJ) that the New Dawn project was terminated in 2013 “following a major satellite anomaly that irreparably reduced the commercial viability and financial returns expected from the project”.
But Intelsat says it “has a proud history of serving the African continent, providing vital connectivity and access to world-class technology since the late 1960s”. It says Mauritius was chosen as a base “in concert” with its SA investment partners.
“We pay taxes where we have established a taxable presence, such as our regional office in SA,” Intelsat says. “Where we do not have a taxable presence, in nations where applicable, our services are taxed through withholding taxes, which are paid on our behalf by our customers under our contractual agreements.”
According to other tax experts, though, those payments are unlikely to be made.
Back in 2008, when the New Dawn project was launched, Intelsat had big plans for its first African satellite.
The satellite, built in Virginia, used channels or “transponders” that helped send information via antennas to Earth.
It was a big deal since governments and the private sector had salivated for years at the prospects for Africa’s development — if only there could be improvements to the continent’s communication black holes.
Intelsat used the offshore Appleby law firm and accounting firm KPMG to establish the Mauritius companies behind the New Dawn satellite.
Intelsat’s Bermuda-based subsidiary and SA’S Convergence, a consortium of largely African investors, were initial investors.
Convergence’s founder, majority shareholder and chairman is Andile Ngcaba — once the director-general of government’s communications department, who then strung together a controversial empowerment deal at Telkom in 2004.
Ngcaba is now a prominent businessman, and former executive chairman of Dimen-