EFF statement on reports of transfer pricing and profit shifting actions of Lonmin plc.
19 September 2014
The Economic Freedom Fighters notes the statement issued by the Alternative Information and Development Centre (AIDC) illustrating that Lonmin is involved in the practice of transfer pricing and profit shifting. The EFF condemns the reported practices of Lonmin because we believe their treacherous actions border on criminality (see M&G report).
In the statement, the AIDC illustrates that, "In sum, Lonmin, just for the years 2008 to 2012 transferred in commission fees $160 million (R1,231 billion) to a Lonmin subsidiary, Western Metals Sales Limited based in Bermuda, a well known tax haven. A further $155 million (R1,170 billion) was paid in management fees to Lonmin Management Services.
These amounts were shifted from Lonmin's South African operations and effectively put out of reach of possible wage demands, meetings of its social labour plan commitments and beyond what would have been "taxable income". It is necessary to ask is if this a case of the so-called "illicit financial flows" that has so worried African heads of state and prompted the Economic Commission for Africa (ECA) and the African Union (AU) to establish the High Level Panel on Illicit Financial Flows.
Lonmin's Bermuda connection is one piece in a complex inter-company labyrinth and picture of excessive dividend payments before the 2008 crash, exorbitant executive salaries as well as yearly management fees to head offices"
The AIDC further illustrates that, "This is an important part of the background to the August 16 Marikana massacre and shaped Lonmin's response to the wage demands of rock drill operators and other workers at its operations.
That Lonmin has something to hide became clear in the last days of evidence at the Marikana Commission of Inquiry. When questioned on these transfers and the relations between Lonmin, its South African subsidiaries and its overseas subsidiaries, its Executive Director, Mr M Seedat seemed to suffer from severe memory loss and could only provide general information that was contradictory. Nevertheless, he was forced to admit in reference to the Lonmin subsidiary in Bermuda, Western Metal Sales Limited, that "A structure like this is normally set up to be optimal from a tax perspective.
Further to this, Mr Seedat told the Commission that the "Bermuda operation" was closed in 2008, yet financial reports audited by the international firm KPMG, records the flow of money to Bermuda up until 2012. A decision was made by Lonmin to rewrite its business history in June 2012 in relation to these payments and retrospectively decree (in June 2012) the closure of Western Metals Sales Limited in 2008″
What this means is that Lonmin, where Mineworkers were murdered and where Cyril Ramaphosa is a Director has been claiming that they do not have money to pay workers the R12500 minimum wage, while they are in reality shifting billions of Rands to tax havens.
As is evident now, Lonmin pressurised its BEE Security Guard Cyril Ramaphosa to use his political influence that government should define workers' protest as a criminal activity and should act with concomitant action. Lonmin, through its economic security guards instigated the murder of Mineworkers on the false basis that they cannot afford the salaries demanded by workers.
Since the beginning of the 5th democratic Parliament, the EFF had constantly spoken about the practice and occurrences of Base Erosion, Profit Shifting and Transfer Pricing. The EFF tabled concrete recommendations in the Minerals, Finance, and Trade & Industry committees that mechanisms should be put in place within the current legislative framework to combat transfer pricing.
The EFF has also called on Parliament and Government to put in place a cogent legislative framework to combat Base Erosion, Transfer Pricing and Profit Shifting and as usual, these ANG run institutions treated our proposals with disdain. We have further. called for a thorough forensic investigation on the finances of all Mining corporations and Resource extracting companies.
Now that there is hard evidence, the EFF calls on SARS to investigate Lonmin and its Directors with the aim of criminal prosecution in instances where deliberate tax avoidance is discovered. Components of the existing laws prohibits transfer pricing, but when he was responding to questions in the National Council of Provinces, Cyril Ramaphosa claimed that it is wholly not a criminal act.
The EFF will write to all the relevant authorities to ask for investigation into this occurrence. We will also support the activities of the AIDC in doing research on base erosion, transfer pricing and profit shifting. South Africa is being drained of massive potential resources and revenue by corporate criminals and it is high time we say Enough is Enough!
Statement issued by the Economic Freedom Fighters, September 19 2014
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