Cyril left red-faced as MTN

On his watch, Africa’s cellular giant shifted billions offshore to low-tax countries

Shortly after Cyril Ramaphosa left MTN to become South Africa’s deputy president l ast year, he lashed out at companies that make profits “disappear” by shifting them “to low-tax operations where there is little or no genuine activity”.

But MTN, Africa’s biggest mobile phone company, moved billions of rands earned in African countries to offshore tax havens while Ramaphosa chaired its board between 2001 and 2013. This was revealed in a joint investigation by amaBhungane and Finance Uncovered, a global investigative journalism network.

Most of the money, which MTN badged as “management fees”, ended up on the Indian Ocean island of Mauritius, where the company employs no staff and appears to own little more than a postbox.

MTN said this did not amount to a tax avoidance scheme and that it “has not actively engaged in any unlawful activities”.

But it ducked questions about why the fees went to Mauritius in the first place and not straight to South Africa — where the people who provide the management services to its African subsidiaries are located.

Furthermore, authorities in South Africa, Nigeria, Ghana and Uganda have challenged MTN’s opaque and complicated offshore payments.

In Nigeria, the company was forced to reverse R2.5-billion in payments, and the Ugandan tax authorities have demanded that it repay more than R100-million. The fees are currently frozen in both Nigeria and Ghana.

This information comes at a critical time for companies like MTN. This week, the Organisation for Economic Co-operation and Development released proposals for new rules to combat tax dodging by multinationals (see “New tax rules to curb evasion”).

Ramaphosa declined to answer questions (see “From Bermuda to Mauritius”).

Shifting profits

Multinationals routinely pay management fees to other companies in their group. They often find it more efficient to centralise functions such as human resources management, procurement, and legal and finance services.

MTN told us it uses two such shared-service centres: one at its South African headquarters and the other in the Dubai International Financial Centre, a free trade zone with a 0% tax rate (read more about MTN Dubai at mg.co.za/mtndubai).

The billions that MTN’s African subsidiaries pay in management fees remunerate those offices for work that they do, MTN said.

There is no evidence that MTN’s offshore activities are illegal, but African tax authorities have become increasingly concerned about the scale of management fees paid to low-tax or no-tax jurisdictions.

Kennedy Onyoni, a spokesperson for the African Tax Administration Forum, a group of African govern- ment tax collectors that includes the South African Revenue Service (Sars), said African tax authorities report that these management fees “often look excessive”.

By shifting revenues from a hightax country to a tax haven such as Mauritius, a company can lower its corporate tax bill. He added that sometimes fees are paid but “the tax administration discovers that, in fact, no services have been provided to the local company”, and added that telecommunications compa- nies were among Africa’s worst tax dodgers.

Onyoni emphasised that he was not pointing a finger at any particular company.

Flowing offshore

MTN keeps the scale of its offshore management fees a tightly guarded secret. MTN spokesperson Chris Maroleng said: “There is no requirement to disclose the amount of fees received by any of these companies. MTN, therefore, does not publicly disclose management fees received and paid by its group companies.”

But public and secret company and government agency investigation documents from across Africa exposed the scale of the management fees, which MTN confirmed:

• A total of R3.7-billion was earmarked to flow from Nigeria to Dubai for the “ultimate benefit” of MTN International (Mauritius) from 2007 to 2013 — about 1.75% of Nigerian revenues. But MTN met resistance from the Nigerian government in 2013 and was forced to reverse R2.6-billion of this amount.

• A total of R85.6-million flowed from Uganda to Mauritius in 2009 alone. Representing 3% of Uganda’s revenues, this suggests that hundreds of millions might have flowed out over the years.

• A total of R3.7-billion went from Ghana to Dubai between 2008 and 2013, with an unknown portion flowing on to Mauritius. It’s calculated that the fees are a massive 9.6% of Ghana’s revenues in those years.

• A total of R512.9-million flowed from Côte d’Ivoire to Mauritius from 2012 to 2013. It’s estimated that the 2013 fee is 5% of the country’s revenues in that year.

Maroleng said MTN Mauritius was formed to hold the group’s global investments and to raise finance offshore. Initially there was also an exchange control benefit.

But he said it is fully taxed in South Africa: “There is therefore no tax benefit enjoyed by MTN as a result of the Mauritius entity.”

Since the turn of the century, mobile phone use has exploded across the continent. Today, there are 685-million subscribers in Africa and more than a third of them — about 230-million — belong to MTN, making very large profits every year for the South African parent company and its shareholders.

The cellphone industry is a crucial source of African taxes. The telecommunications industry’s huge profits mean that companies like MTN are among the largest taxpayers.

But now some African governments are concerned about the effect of MTN’s management fees on their tax revenues.

Uganda pushes back

MTN has, for a number of years, haggled over the management fees in secret with Sars and the governments of Uganda, Nigeria and Ghana.

In December 2011, the Uganda Revenue Authority (URA) slapped a R467-million tax bill on MTN Uganda.

Of this, R106-million concerned a dispute over management fees paid by the Ugandan operation to MTN Mauritius between 2003 and 2009.

The Ugandans argued that these amounts should have been taxed before being shifted offshore, and challenged the substance of the fees.

The authority told the company: “There is no evidence that the services purported to have been provided to MTN subsidiaries were needed by MTN Uganda. If MTN Uganda did not need those services, then it should not pay for them.”

The URA said MTN had provided it with “very little” evidence for why the fees were deducted: “This information is very far from justifying a payment of 3% of MTN Uganda’s turnover as management fees.”

Four years later, the matter is still being argued before the courts, an MTN Uganda spokesperson said.

Maroleng said the matter was also currently the subject of discussions between the URA and Sars under the terms of a bilateral tax treaty. He added: “We do not want to pre-empt the outcome of these discussions.”

Nigerian fees on ice

For a brief moment in January 2013, MTN’s tax issues were aired in South Africa’s high court.