09
Oct
MTN Mobile money stalls

Finance Uncovered Investigation: MTN’s Mauritian Billions

The Finance Uncovered global network of investigative reporters have today published a cross-border investigation into South African telecoms giant MTN exposing how billions of rand from its subsidiaries in Ghana, Nigeria and Uganda have been shifted to a shell company in the small island tax haven of Mauritius.

The two year investigation spanning five countries was published today in South Africa’s Mail and Guardian, the Ugandan Observer and Ghana Business News.

A report in Nigeria will follow shortly.

MTN’s Offshore Payments

The reporting team discovered MTN revenue producing companies operating in Ghana, Nigeria, Uganda and Cote d’Ivoire made substantial payments to offshore companies in Dubai and Mauritius. These payments were counted as a cost of business for the operating companies, lowering their profits and potential tax bill.

The enormous sums were purportedly for management and technical services performed on behalf of these companies, as well as royalty payments for the use of the MTN brand. In Ghana, these payments accounted for more than 9% of the turnover of the company.

African journalists in Ghana, Nigeria and Uganda working with Finance Uncovered discovered that 55% of management and technical fee payments are directed towards MTN International, a company based in Mauritius. The Mauritius company has no staff and is little more than a post box. The remaining 45% was routed to MTN Dubai, where the company employs 115 staff who provide shared services to the group.

MTN told reporters that MTN International remunerates companies in South Africa for management services performed on behalf of the company. They were unable to answer why the payments were made to Mauritius first.

Company documents published by MTN said that money in MTN Mauritius was used to repay external debts of the MTN group and dividends, rather than pay for management services.

But after further questions were put to MTN, the company was forced to admit that not all of the revenue was passed onto South Africa. The company refused to disclose how much it kept in Mauritius.

The company said that MTN I is resident in South Africa for tax purposes and the Mauritian entity gives no tax benefit to the company.

MTN in Africa

Our revelations are particularly sensitive given the sheer size of MTN. The South African listed firm is the largest cell phone company in Africa with 227,503,000 subscribers worldwide. Almost one in four mobile phones in Africa are part of the MTN network a total of 161m.

This means MTN is the largest company in many of the countries in which it operates. It is also frequently one of the largest taxpayers in African countries so they are particularly vulnerable to profit shifting by the company.

Game over?

Our investigation has established that a number of African countries have now challenged the offshore payments made by MTN. Authorities in Nigeria and Ghana have frozen payments and the Ugandan Authorities has placed a large tax bill on the company for management fees paid over a 6 year period.

Ghana

Scancom, MTN’s subsidiary in Ghana, paid 758m Cedi (Rand 3.7bn, $401m) in management and technical fees to MTN Dubai between 2008 and 2013 equivalent to 9.64% of the company’s revenue.

An agreement between the Ghanian Investment Promotion Centre and the company that allowed the management fees to be paid expired in 2013 and payments have been frozen. MTN is currently negotiating a new agreement with GIPC.

Uganda

MTN Uganda paid 3% of turnover in management fees between 2003 and 2009 to MTNI in Mauritius. The Uganda Revenue Authority 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. The total tax bill from the URA was R467m ($69m).

Nigeria

In 2013 the company disclosed that it had paid R2.5bn ($562m) in fees to MTN Dubai between 2010 and 2013. The company made this disclosure because the fee payments had been reversed following a failure to come to a new agreement on management fees with Nigerian regulators.

Despite these fees being paid to MTN Dubai, MTN confirmed to us that these fees are then ‘on-paid’ to MTNI in Mauritius and that MTNI Mauritius is the ‘ultimate beneficiary’ of the fees.

Cote d’Ivoire

MTN has confirmed to us that the company paid 12bn West African Francs in 2012 and 14bn West African Francs (Rand 512.9m, $55.53m) in 2013 in management fees to MTNI. The figure for 2013 is equivalent to 5% of the revenue made by MTN in Cote d’Ivoire.

The reporting team

Finance Uncovered is a global network of journalists from over 55 countries across the globe. This investigation was undertaken by Craig Mckune of amaBhungane in South Africa, George Turner and Nick Mathiason from Finance Uncovered in London, Francis Koktuse in Ghana, Emmanuel Mayah in Nigeria and Jeff Mbanga in Uganda.

Note to Editors

  1. Finance Uncovered is a reporting and training project equipping journalists and campaigners around the world with practical skills to investigate illicit financial flows. In two years we have trained 122 journalists, campaigners and academics from 54 countries. Find our website here.
  2. Dollar calculations were made by using the Rand/Dollar conversion rate on 31st March 2013 for the figures from Nigeria, Ghana and Cote d’Ivoire. For Uganda the conversion date was 31st March 2011. The Rand conversions from local currencies were made using the relevant conversion rate for each year that payments were made.
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  • Etic Rubega

    Thanks Finance Uncovered team for the report.
    Governments need to act strongly against tax evasion.
    We would appreciate to get similar reports about other multinationals operating in Africa like Oil and Gaz companies, breweries, ciment producers…Africa is not collecting most of tax due from.multinationals..this has to change.

  • Pingback: Looking for MTNs ‘Offshore Stash’ | Hiya Maya()

  • Maya

    If MTN are finagling to artificially shift profits to low-tax destinations there are questions to be answered. It they are illicitly concealing them in a secret offshore ‘stash’ that is really serious. But reading your report, and MTN’s responses I find it hard to see why you are so convinced they have done something dodgy – i.e. that is both scandalous (i.e. hidden or inappropriate) and a tax benefit to MTN.

    Maybe I am missing something, but it would be great to have some broader commentary from tax experts as to what is going on here?

    I have written about it here: https://hiyamaya.wordpress.com/2015/10/16/looking-for-mtns-offshore-stash/

    • admin

      Maya,

      Thanks for taking the time to read and comment on our investigation.

      Your criticism that the group level tax rate is evidence that MTN is not engaging in tax avoidance we feel is misplaced, because the group level tax rate is manifestly not the issue we were dealing with in our investigation.

      In the context of profit shifting, the group level rate is irrelevant because profit shifting erodes the tax base. It has no impact on the tax rate. In other words, if a company is engaged in profit shifting it lowers the amount of profit that the tax rate is applied to.

      To be doubly clear, you could be paying a 90% tax on £1. The fact that there is a 90% rate on that £1 does not mean you haven’t been engaging in tax avoidance if the taxable amount should have been more than £1.

      We feel that the story was very clear. The investigation questioned whether MTN was extracting profits fairly from companies they owned outside of South Africa. In this case, the main issue is not the total group level tax rate for MTN as a whole, but the tax base in the countries where it operates.

      It matters very little to people in Uganda, Nigeria, Ghana and Cote d’Ivoire if profits extracted from their countries are then taxed in South Africa. Their interest is that the company is properly taxed in their home countries.

      You say that there is scant evidence of tax avoidance. Our article found billions of rand being paid to a shell company in Mauritius for management services, and government authorities from several countries challenging these payments. One country is taking court action. The fact that these payments were made to a company with no employees raises legitimate questions regarding their substance.

      Although MTN told us that some of those payments were remitted from Mauritius to South Africa, they refused to tell us how much. We gave them every opportunity to do so. MTN did admit that not all of the fees were remitted to South Africa.

      We are sure that people can make their own minds up about the payments. And we feel strongly that reporting on this ongoing and live issue is eminently newsworthy.

      Of course you know all this, because we set this out to you in the long email correspondence we had over the last week.

      In response, you told us that we had misunderstood the issue, because in your words, “Use of the words ‘management fees’ does not imply that the money must be passed through and used to ‘pay managers’ – it is used to describe a professional service contract between two companies”. It would be interesting to know what professional services you think MTN International (Mauritius) renders if it has no staff.

      We note that this is not an argument you advance in your blog.

      It is illustrative that your blog frequently tells the reader what we “seem to be” saying, but nowhere have you mentioned that you contacted us to clarify what we said, and that we responded to you in full.

      We have been more than willing to engage with you, to help you understand our story and to spend time making sure we were as clear as possible with the questions you asked us.

      That you continue to choose to repeat your misunderstandings of the article, without including our view, is disappointing, particularly in the context where you accuse others of using innuendo to mislead the reader.

      For our part, we have been meticulous about the information we have gathered, and amaBhunghane published in full the correspondence they had with MTN.

      Finally, a question for you: within hours of publishing our article last week, you took to social media to attack it. You first accused us of being a ‘sock puppet’ and asked questions about our funding which we answered. When that failed as a line of attack you said that the tax rate paid by MTN shows that our investigation was unfounded – an issue we have dealt with. Rather than acknowledge that, you continued to publish your blog post without acknowledging our position.

      What is your interest in this? Maybe it is an attempt to bring clarity to this important debate. If that is the case, we hope we have now helped you and your readers in that mission.

      • robmanzoni

        It seems clear from this thread that Maya has some stake in MTN – or in companies which use the same ruse to avoid paying its fair share of the tax in the host country.
        While MTN is naturally shy about disclosing too many facts, which would expose its deceit, the company can pay some troll to do the arguing for them… this way, it’s easier to deny knowledge of how MTN operates, yet still argue vigorously that the company is doing nothing wrong or unethical; and deliberately neglecting to mention your responses.

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